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 3A. Selected Financial Data
Item 3B. Capitalization and Indebtedness
Item 3C. Reasons for The Offer and Use of Proceeds
Item 3D. Risk Factors
Item 4. Information on The Company
Item 4A. History and Development of The Company
Item 4B. Business Overview
Item 4C. Organizational Structure
Item 4D. Property, Plants and Equipment
Item 4.A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 5A. Operating Results
Item 5B. Liquidity and Capital Resources
Item 5C. Research and Development, Patents and Licenses, Etc.
Item 5D. Trend Information
Item 5E. Off-Balance Sheet Arrangements
Item 5F. Tabular Disclosure of Contractual Obligations
Item 6. Directors, Senior Management and Employees
Item 6A. Directors and Senior Management
Item 6B. Compensation
Item 6C. Board Practices
Item 6D. Employees
Item 6E. Share Ownership
Item 7. Major Stockholders and Related Party Transactions
Item 7A. Major Stockholders
Item 7B. Related Party Transactions
Item 7C. Interest of Experts and Counsel
Item 8. Financial Information
Item 8A. Consolidated Statements and Other Financial Information
Item 8B. Significant Changes
Item 9. The Offer and Listing
Item 9A. Offering and Listing Details
Item 9B. Plan of Distribution
Item 9C. Markets
Item 9D. Selling Shareholders
Item 9E. Dilution
Item 9F. Expenses of The Issuer
Item 10. Additional Information
Item 10A. Share Capital
Item 10B. Memorandum and Articles of Association
Item 10C. Material Contracts
Item 10D. Exchange Controls
Item 10E. Taxation
Item 10F. Dividends and Paying Agents
Item 10G. Statements By Experts
Item 10H. Documents on Display
Item 10I. 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 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-12.1 h04530exv12w1.htm
EX-13.1 h04530exv13w1.htm

Woori Bank Earnings 2010-12-31

Balance SheetIncome StatementCash Flow

20-F 1 h04530e20vf.htm 20-F e20vf
Table of Contents

 
As filed with the Securities and Exchange Commission on June 27, 2011
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
 
 
FORM 20-F
 
 
 
 
     
(Mark One)
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended December 31, 2010
OR
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
o
  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
    For the transition period from          to          
 
Commission file number 001-31811
 
 
 
 
Woori Finance Holdings Co., Ltd.
(Exact name of Registrant as specified in its charter)
 
 
 
 
Woori Finance Holdings Co., Ltd.
(Translation of Registrant’s name into English)
 
 
 
 
The Republic of Korea
(Jurisdiction of incorporation or organization)
 
203 Hoehyon-dong, 1-ga, Chung-gu, Seoul 100-792, Korea
(Address of principal executive offices)
 
Woo Seok Seong
203 Hoehyon-dong, 1-ga, Chung-gu, Seoul 100-792, Korea
Telephone No.: +82-2-2125-2110
Facsimile No.: +82-2-2125-2293
(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
 
Name of each exchange on which registered
 
American Depositary Shares, each representing
three shares of Common Stock
  New York Stock Exchange
Common Stock, par value W5,000 per share   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.
 
806,012,779 shares of Common Stock, par value W5,000 per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  þ Yes  o 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.  o Yes  þ 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.  þ Yes  o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  o Yes  o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
               þ Large accelerated filer o  Accelerated Filer o  Non-accelerated filer               
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
         
þ U.S. GAAP
 
o International Financial Reporting Standards as issued
by the International Accounting Standards Board
  o 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.
o Item 17  o 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).  o Yes  þ 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.  o Yes  o No
 
* Not for trading, but only in connection with the registration of the American Depositary Shares.
 


Table of Contents

 
TABLE OF CONTENTS
 
 
                 
            Page
 
    1  
    2  
  Identity of Directors, Senior Management and Advisers     3  
  Offer Statistics and Expected Timetable     3  
  Key Information     3  
    Item 3A.   Selected Financial Data     3  
    Item 3B.   Capitalization and Indebtedness     13  
    Item 3C.   Reasons for the Offer and Use of Proceeds     13  
    Item 3D.   Risk Factors     13  
  Information on the Company     39  
    Item 4A.   History and Development of the Company     39  
    Item 4B.   Business Overview     47  
    Item 4C.   Organizational Structure     128  
    Item 4D.   Property, Plants and Equipment     130  
  Unresolved Staff Comments     130  
  Operating and Financial Review and Prospects     130  
    Item 5A.   Operating Results     130  
    Item 5B.   Liquidity and Capital Resources     160  
    Item 5C.   Research and Development, Patents and Licenses, etc.     178  
    Item 5D.   Trend Information     178  
    Item 5E.   Off-Balance Sheet Arrangements     178  
    Item 5F.   Tabular Disclosure of Contractual Obligations     178  
  Directors, Senior Management and Employees     179  
    Item 6A.   Directors and Senior Management     179  
    Item 6B.   Compensation     181  
    Item 6C.   Board Practices     181  
    Item 6D.   Employees     184  
    Item 6E.   Share Ownership     185  
  Major Stockholders and Related Party Transactions     186  
    Item 7A.   Major Stockholders     186  
    Item 7B.   Related Party Transactions     186  
    Item 7C.   Interest of Experts and Counsel     187  
  Financial Information     187  
    Item 8A.   Consolidated Statements and Other Financial Information     187  
    Item 8B.   Significant Changes     190  
  The Offer and Listing     190  
    Item 9A.   Offering and Listing Details     190  
    Item 9B.   Plan of Distribution     191  
    Item 9C.   Markets     191  
    Item 9D.   Selling Shareholders     198  
    Item 9E.   Dilution     198  
    Item 9F.   Expenses of the Issuer     198  


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            Page
 
  Additional Information     198  
    Item 10A.   Share Capital     198  
    Item 10B.   Memorandum and Articles of Association     199  
    Item 10C.   Material Contracts     205  
    Item 10D.   Exchange Controls     205  
    Item 10E.   Taxation     206  
    Item 10F.   Dividends and Paying Agents     210  
    Item 10G.   Statements by Experts     210  
    Item 10H.   Documents on Display     210  
    Item 10I.   Subsidiary Information     211  
  Quantitative and Qualitative Disclosures about Market Risk     211  
  Description of Securities other than Equity Securities     238  
  Defaults, Dividend Arrearages and Delinquencies     239  
  Material Modifications to the Rights of Security Holders and Use of Proceeds     239  
  Controls and Procedures     239  
  Reserved     240  
    Item 16A.   Audit Committee Financial Expert     240  
    Item 16B.   Code of Ethics     240  
    Item 16C.   Principal Accountant Fees and Services     240  
    Item 16D.   Exemptions from the Listing Standards for Audit Committees     241  
    Item 16E.   Purchase of Equity Securities by the Issuer and Affiliated Purchasers     241  
    Item 16F.   Change in Registrant’s Certifying Accountant     241  
    Item 16G.   Corporate Governance     241  
  Financial Statements     243  
  Financial Statements     243  
  Exhibits     243  
 EX-12.1
 EX-13.1

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
 
Unless indicated otherwise, the financial information in this annual report as of and for the years ended December 31, 2006, 2007, 2008, 2009 and 2010 has been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S. GAAP.
 
In April 2008, we acquired a 51.0% interest in LIG Life Insurance, and entered into a joint venture agreement with Aviva International Holdings Limited in connection with this acquisition. LIG Life Insurance was subsequently renamed Woori Aviva Life Insurance and became an equity method investee as of April 2008.
 
In this annual report:
 
  •  references to “we,” “us” or “Woori Finance Holdings” are to Woori Finance Holdings Co., Ltd. and, unless the context otherwise requires, its subsidiaries;
 
  •  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 “W” are to the currency of Korea; and
 
  •  references to “U.S. dollars,” “$” or “US$” are to United States dollars.
 
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 translations 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, 2010, which was W1,130.6 = US$1.00.


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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,” “plan” 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 3D. Risk Factors,” “Item 5. Operating and Financial Review and Prospects” and “Item 4B. Business Overview” 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 3D. 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:
 
  •  our ability to successfully implement our strategy;
 
  •  future levels of non-performing loans;
 
  •  our growth and expansion;
 
  •  the adequacy of allowance for credit and investment 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;
 
  •  prices and yields of equity and debt securities;
 
  •  the performance of the financial markets in Korea and globally;


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  •  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 3D. 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 3A.  Selected Financial Data
 
Unless otherwise indicated, the selected consolidated financial and operating data set forth below as of and for the years ended December 31, 2006, 2007, 2008, 2009 and 2010 have been derived from our audited consolidated financial statements, which have been prepared in accordance with U.S. GAAP and audited by Deloitte Anjin LLC, an independent registered public accounting firm.
 
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.


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Consolidated Income Statement Data
 
                                                 
    Year ended December 31,  
    2006     2007     2008     2009     2010     2010(1)  
    (in billions of Won except per share data)     (in millions of
 
          US$ except per
 
          share data)  
 
Interest and dividend income
  W 9,365     W 12,192     W 15,553     W 13,273     W 12,919     US$ 11,426  
Interest expense
    5,465       7,656       10,402       8,586       7,660       6,775  
                                                 
Net interest income
    3,900       4,536       5,151       4,687       5,259       4,651  
Provision for loan losses
    509       219       1,608       2,408       3,078       2,722  
Provision for credit-related commitments (reversal of provision)(2)
    107       (54 )     157       44       169       150  
Other provision(3)
    36       36       71       103       171       151  
Non-interest income
    2,424       2,222       1,307       3,452       3,930       3,476  
Non-interest expense
    3,098       3,467       4,136       4,093       4,127       3,650  
Income tax expense
    620       837       358       379       415       367  
                                                 
Net income(4)
    1,954       2,253       128       1,112       1,229       1,087  
Net income attributable to the noncontrolling interest
    3       11       (22 )     (23 )     (53 )     (47 )
Net income attributable to stockholders
    1,951       2,242       150       1,135       1,282       1,134  
Other comprehensive income (loss), net of tax
    477       (143 )     (139 )     (158 )     (15 )     (14 )
Comprehensive income (loss)
    2,431       2,110       (11 )     954       1,214       1,073  
Comprehensive income (loss) attributable to the noncontrolling interest
    3       14       (20 )     (20 )     (65 )     (58 )
Comprehensive income (loss) attributable to stockholders
  W 2,428     W 2,096     W 9     W 974     W 1,279     US$ 1,131  
                                                 
Per common share data:
                                               
Net income (loss) per share—basic
  W 2,420     W 2,781     W 187     W 1,408     W 1,590     US$ 1.41  
Income (loss) per share before extraordinary items—basic
    2,420       2,781       187       1,408       1,590       1.41  
Weighted average common shares outstanding—basic (in thousands)
    806,013       806,000       805,927       806,013       806,013       806,013  
Net income (loss) per share—diluted(5)
  W 2,420     W 2,781     W 187     W 1,408     W 1,590     US$ 1.41  
Income (loss) per share before extraordinary items—diluted
    2,420       2,781       187       1,408       1,590       1.41  
Weighted average common shares outstanding—diluted (in thousands)
    806,013       806,000       805,927       806,013       806,013       806,013  
Cash dividends paid per share(6)
  W 600     W 250           W 100     W 250     US$ 0.22  
 
 
(1)   Won amounts are expressed in U.S. dollars at the rate of W1,130.6 to US$1.00, the noon buying rate in effect on December 31, 2010 as quoted by the Federal Reserve Bank of New York in the United States.


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(2)   The reversal of provisions in 2007 resulted from subsequent changes in our estimation of losses related to our credit-related commitments. We determined in 2007 that a portion of our allowances for losses on credit-related commitments were no longer needed, and accordingly reversed the related portions of the provisions we had initially allocated during the year.
(3)   Mainly consists of provisions relating to (a) trade receivables and (b) repurchase obligations with respect to loans sold to the Korea Asset Management Corporation. In 2008, 2009 and 2010, we did not have any provisions relating to repurchase obligations with respect to loans sold to the Korea Asset Management Corporation.
(4)   On January 1, 2009, we adopted Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (ASC 810-10-45-15, “Consolidation—Noncontrolling Interest in a Subsidiary”) (“ASC 810-10-45-15”). As a result, minority interests have been recharacterized as noncontrolling interests and net income (loss) attributable to noncontrolling interests, net of tax, is included in income (loss) before cumulative effect of a change in accounting principle, net of tax, and subtracted from net income (loss) to calculate net income (loss) attributable to stockholders. Corresponding items for all prior periods have been restated accordingly. See “Item 5B. Liquidity and Capital Resources—Financial Condition—Recent Accounting Pronouncements.”
(5)   In the diluted earnings per share calculation, options outstanding to purchase our common stock in 2006, 2007 and 2008 are not deemed to have been exercised. We did not have any stock options outstanding in 2009 and 2010. Convertible debentures issued by Woori Financial, a subsidiary we acquired in September 2007, were included in the diluted earnings per share calculations for 2007, 2009 and 2010 but excluded from such calculations due to their anti-dilutive effect in 2008, while stock-based compensation awards of Woori Financial were excluded from the diluted earnings per share calculations for 2007, 2008, 2009 and 2010 due to their anti-dilutive effect. See Note 30 of the notes to our consolidated financial statements. The convertible debentures issued by Woori Financial were redeemed in May 2010.
(6)   Amounts shown for each year are cash dividends per share relating to such year, which were declared and paid in the following year. U.S. GAAP requires that dividends be recorded in the period in which they are declared rather than the period to which they relate unless those periods are the same. With respect to the 2006 fiscal year, we paid dividends in 2007 of W600 per common share ($0.65 per common share at the noon buying rate in effect on December 29, 2006) to our stockholders. With respect to the 2007 fiscal year, we paid dividends in 2008 of W250 per common share ($0.27 per common share at the noon buying rate in effect on December 31, 2007) to our stockholders. With respect to the 2008 fiscal year, we did not pay any dividends to our stockholders. With respect to the 2009 fiscal year, we paid dividends in 2010 of W100 per common share ($0.09 per common share at the noon buying rate in effect on December 31, 2009) to our stockholders. With respect to the 2010 fiscal year, we paid dividends in 2011 of W250 per common share ($0.22 per common share at the noon buying rate in effect on December 31, 2010) to our stockholders. See “Item 8A. Consolidated Statements and Other Financial Information—Dividends.”


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Consolidated Balance Sheet Data
 
                                                 
    As of December 31,  
    2006     2007     2008     2009     2010     2010(1)  
          (in billions of Won)           (in millions
 
                      of US$)  
 
Assets
                                               
Cash and cash equivalents
  W 7,935     W 11,553     W 13,564     W 16,581     W 15,958     US$ 14,114  
Restricted cash(2)
    243       131       2,761       588       478       423  
Interest-earning deposits in other banks
    1,582       2,128       1,747       2,207       2,875       2,543  
Call loans and securities purchased under resale agreements
    940       1,695       3,692       6,524       4,465       3,949  
Trading assets
    7,576       12,173       19,817       14,225       13,100       11,587  
Available-for-sale securities
    28,174       27,235       23,406       16,059       19,020       16,823  
Held-to-maturity securities (fair value of W8,595 billion in 2006, W8,120 billion in 2007, W9,758 billion in 2008, W16,021 billion in 2009 and W20,158 billion ($17,830 million) in 2010)
    8,614       8,216       9,612       15,974       19,905       17,606  
Other investment assets(3)
    1,568       2,051       2,417       2,565       2,601       2,301  
Loans (net of allowance for loan losses of W1,855 billion in 2006, W1,736 billion in 2007, W2,942 billion in 2008, W3,557 billion in 2009 and W4,874 billion ($4,311 million) in 2010)
    131,928       158,130       185,667       184,058       186,331       164,807  
Due from customers on acceptances
    267       249       789       791       667       590  
Premises and equipment, net
    2,149       2,399       2,454       2,611       2,469       2,184  
Accrued interest and dividends receivable
    865       950       1,079       956       1,028       909  
Assets held for sale
    81       132       351       591       135       120  
Goodwill
    38       232       136       114       88       78  
Other assets(4)
    3,121       3,601       3,653       3,180       3,818       3,375  
                                                 
Total assets
  W 195,081     W 230,875     W 271,145     W 267,024     W 272,938     US$ 241,409  
                                                 
Liabilities
                                               
Deposits
                                               
Interest-bearing
  W 121,688     W 140,359     W 161,653     W 170,547     W 180,207     US$ 159,390  
Non-interest-bearing
    4,851       4,668       6,679       7,027       6,119       5,412  
                                                 
Total deposits
    126,539       145,027       168,332       177,574       186,326       164,802  
Call money
    2,270       3,008       2,960       5,687       4,649       4,113  
Trading liabilities
    1,701       2,981       11,286       4,131       3,337       2,952  
Acceptances outstanding
    267       249       789       791       667       590  
Other borrowed funds
    12,025       13,932       18,458       12,835       12,382       10,952  
Secured borrowings
    2,629       3,486       3,401       2,277       3,998       3,536  
Long-term debt
    32,298       41,336       44,470       43,340       39,487       34,926  
Accrued interest payable
    2,340       2,892       3,317       2,554       2,818       2,492  
Other liabilities(2)(5)
    4,531       5,494       5,871       4,613       5,020       4,439  
                                                 
Total liabilities
    184,600       218,405       258,884       253,802       258,684       228,802  
Stockholders’ equity
    10,426       12,114       11,920       12,866       13,968       12,354  
Noncontrolling interests(6)
    55       356       341       356       286       253  
                                                 
Total equity
    10,481       12,470       12,261       13,222       14,254       12,607  
                                                 
Total liabilities and equity
  W 195,081     W 230,875     W 271,145     W 267,024     W 272,938     US$ 241,409  
                                                 
 
 
(1)   Won amounts are expressed in U.S. dollars at the rate of W1,130.6 to US$1.00, the noon buying rate in effect on December 31, 2010 as quoted by the Federal Reserve Bank of New York in the United States.


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(2)   Commencing with the year ended December 31, 2007, we have reclassified deposits for severance payments from restricted cash to other liabilities. See Notes 4 and 20 of the notes to our consolidated financial statements.
(3)   For a description of “other investment assets,” see Note 9 of the notes to our consolidated financial statements.
(4)   For a description of “other assets,” see Note 15 of the notes to our consolidated financial statements.
(5)   For a description of “other liabilities,” see Note 20 of the notes to our consolidated financial statements.
(6)   On January 1, 2009, we adopted ASC 810-10-45-15. As a result, minority interests have been recharacterized as noncontrolling interests and reclassified as a component of equity. Corresponding items for all prior periods have been restated accordingly.
 
Profitability Ratios and Other Data
 
                                         
    Year ended December 31,
    2006   2007   2008   2009   2010
    (in billions of Won except percentages)
 
Return on average assets(1)
    1.13 %     1.03 %     0.06 %     0.40 %     0.47 %
Return on average equity(2)
    18.70       20.41       1.17       9.55       9.67  
Net interest spread(3)
    2.37       2.16       1.99       1.81       2.01  
Net interest margin(4)
    2.50       2.28       2.16       1.86       2.10  
Cost-to-income ratio(5)
    48.99       51.30       64.04       50.29       44.91  
Average stockholders’ equity as a percentage of average total assets
    6.06       5.05       4.78       4.18       4.81  
Total revenue(6)
  W 11,789     W 14,414     W 16,860     W 16,725     W 16,849  
Operating expense(7)
    8,563       11,123       14,538       12,679       11,787  
Operating margin(8)
    3,226       3,291       2,322       4,046       5,062  
Operating margin as a percentage of total revenue
    27.36 %     22.83 %     13.77 %     24.19 %     30.04 %
 
 
(1)   Represents net income attributable to stockholders as a percentage of average total assets. Average balances are based on daily balances for Woori Bank, Kyongnam Bank and Kwangju Bank, and on quarterly balances for all of our other subsidiaries and our special purpose companies.
(2)   Represents net income attributable to stockholders as a percentage of average stockholders’ equity. Average balances are based on daily balances for Woori Bank, Kyongnam Bank and Kwangju Bank, and on quarterly balances for all of our other subsidiaries and our special purpose 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 to the sum of net interest income and non-interest income.
(6)   Total revenue represents interest and dividend income plus non-interest income.
 
The following table shows how total revenue is calculated:
 
                                         
    Year ended December 31,  
    2006     2007     2008     2009     2010  
    (in billions of Won)  
 
Interest and dividend income
  W 9,365     W 12,192     W 15,553     W 13,273     W 12,919  
Non-interest income
    2,424       2,222       1,307       3,452       3,930  
                                         
Total revenue
  W 11,789     W 14,414     W 16,860     W 16,725     W 16,849  
                                         
 
(7)   Operating expense represents interest expense plus non-interest expense, excluding provisions of W652 billion, W201 billion, W1,836 billion, W2,555 billion and W3,418 billion for 2006, 2007, 2008, 2009 and 2010, respectively.
 
The following table shows how operating expense is calculated:
 
                                         
    2006     2007     2008     2009     2010  
    (in billions of Won)  
 
Interest expense
  W 5,465     W 7,656     W 10,402     W 8,586     W 7,660  
Non-interest expense
    3,098       3,467       4,136       4,093       4,127  
                                         
Operating expense
  W 8,563     W 11,123     W 14,538     W 12,679     W 11,787  
                                         
(8)   Operating margin represents total revenue less operating expenses.


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Asset Quality Data
 
                                         
    As of December 31,  
    2006     2007     2008     2009     2010  
    (in billions of Won)  
 
Total loans
  W 133,740     W 159,885     W 188,632     W 187,617     W 191,185  
Total non-performing loans(1)
    1,354       1,121       2,088       2,489       5,855  
Other impaired loans not included in non-performing loans
    391       274       1,608       2,887       959  
Total non-performing loans and other impaired loans
    1,745       1,395       3,696       5,376       6,814  
Total allowance for loan losses
    1,855       1,736       2,942       3,557       4,874  
Non-performing loans as a percentage of total loans
    1.01 %     0.70 %     1.11 %     1.33 %     3.06 %
Non-performing loans as a percentage of total assets
    0.69       0.48       0.77       0.93       2.14  
Total non-performing loans and other impaired loans as a percentage of total loans
    1.30       0.87       1.96       2.87       3.56  
Allowance for loan losses as a percentage of total loans
    1.39       1.09       1.56       1.90       2.55  
 
 
(1)   Non-performing loans are defined as those loans that are classified as substandard or below based on the Financial Services Commission’s asset classification criteria. See “Item 4B. Business Overview—Assets and Liabilities—Asset Quality of Loans—Loan Classifications.”


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Segment Information Under Korean GAAP
 
The following table sets forth financial data under Korean GAAP as of or for the year ended December 31, 2010 for our business segments:
 
                                                                 
                            Securities
                   
          Kyongnam
    Kwangju
    Credit card
    brokerage
                   
    Woori Bank     Bank     Bank     operations     services(1)     Other     Elimination(2)     Total  
                      (in billions of Won)                    
 
Interest and dividend income
  W 10,142     W 1,158     W 904     W 996     W 600     W 486     W (29 )   W 14,257  
Interest expense
    5,902       552       434       123       269       475       (47 )     7,708  
                                                                 
Net interest income
    4,240       606       470       873       331       11       18       6,549  
                                                                 
Provision for loan losses and credit-related commitments (reversal of provision)
    2,255       89       136       79       12       316       (218 )     2,669  
Non-interest income
    15,090       546       226       44       3,450       3,198       (1,890 )     20,664  
Non-interest expenses
    15,847       860       409       520       3,473       1,494       (228 )     22,375  
                                                                 
Net non-interest income (loss)
    (757 )     (314 )     (183 )     (476 )     (23 )     1,704       (1,662 )     (1,711 )
Depreciation and amortization
    129       9       9             1       164       62       374  
                                                                 
Net income (loss) before tax
    1,099       194       142       318       295       1,235       (1,488 )     1,795  
Income tax expense
    231       50       36       77       69       31       1       495  
                                                                 
Net income (loss) for the period under Korean GAAP
    868       144       106       241       226       1,204       (1,489 )     1,300  
U.S. GAAP adjustments
    39       33       (4 )     15       (226 )     (223 )     295       (71 )
                                                                 
Consolidated net income
  W 907     W 177     W 102     W 256     W     W 981     W (1,194 )   W 1,229  
                                                                 
Consolidated net income attributable to the noncontrolling interest
    (12 )                             (60 )     19       (53 )
Consolidated net income attributable to the stockholders
    919       177       102       256             1,041       (1,213 )     1,282  
Segments’ total assets under Korean GAAP
  W 224,263     W 21,855     W 16,518     W 3,943     W 17,488     W 27,069     W (19,708 )   W 291,428  
U.S. GAAP adjustments
    (640 )     (187 )     334       184       (17,488 )     (1,308 )     615       (18,490 )
Segments’ total assets
  W 223,623     W 21,668     W 16,852     W 4,127     W     W 25,761     W (19,093 )   W 272,938  
                                                                 
 
 
(1)   Includes the operations of Woori Investment & Securities, which is not a consolidated subsidiary under U.S. GAAP. We acquired a 27.3% voting interest in LGIS in October and December 2004. As a result of this acquisition, LGIS became a consolidated subsidiary under Korean GAAP (but not under U.S. GAAP) effective December 24, 2004. On March 31, 2005, we merged Woori Securities, a wholly-owned subsidiary, into LGIS and renamed the surviving entity Woori Investment & Securities, which remained a consolidated subsidiary under Korean GAAP (but not under U.S. GAAP).
(2)   Includes eliminations for consolidation, intersegment transactions and certain differences in classification under the management reporting system.


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Selected Financial Information
 
Average Balance Sheets and Related Interest
 
The following tables show our average balances and interest rates for 2008, 2009 and 2010:
 
                                                                         
    Year ended December 31,  
    2008     2009     2010  
    Average
    Interest
    Average
    Average
    Interest
    Average
    Average
    Interest
    Average
 
    Balance(1)     Income(2)(3)(4)     Yield     Balance(1)     Income(2)(3)     Yield     Balance(1)     Income(2)(3)     Yield  
    (in billions of Won except percentages)  
 
Assets
                                                                       
Interest-earning assets
                                                                       
Interest-earning deposits in other banks
  W 4,072     W 179       4.40 %   W 4,679     W 195       4.16 %   W 6,036     W 224       3.70 %
Call loans and securities purchased under resale agreements
    2,931       132       4.48       7,873       131       1.67       8,126       151       1.86  
Trading securities(5)
    11,038       524       4.75       14,241       409       2.87       9,687       370       3.82  
Investment securities(5)
    34,636       2,102       6.07       37,400       1,774       4.74       36,853       1,601       4.34  
Loans
                                                                       
Commercial and industrial
    98,392       6,783       6.89       106,282       6,241       5.87       106,616       6,150       5.77  
Lease financing
    349       28       8.10       301       32       10.51       348       41       11.86  
Trade financing
    12,718       514       4.05       11,090       463       4.17       12,002       314       2.61  
Other commercial
    9,021       690       7.65       7,538       631       8.37       7,101       607       8.56  
General purpose household(6)
    56,945       4,005       7.03       57,323       2,925       5.10       58,344       2,967       5.09  
Mortgage
    3,226       226       7.00       3,592       179       4.99       3,972       249       6.27  
Credit cards(3)
    1,383       282       20.27       1,556       293       18.85       1,448       245       16.94  
                                                                         
Total loans(7)
    182,034       12,528       6.88 %     187,682       10,764       5.74 %     189,831       10,573       5.57 %
                                                                         
Total average interest-earning assets
    234,711       15,465       6.59 %     251,875       13,273       5.27 %     250,533       12,919       5.16 %
Non-interest-earning assets
                                                                       
Cash and cash equivalents
    10,992                   8,987                   14,553              
Foreign exchange contracts and derivatives
    8,094                   6,991                   4,026              
Premises and equipment
    2,453                   2,533                   2,542              
Due from customers on acceptance
    519                   790                   729              
Allowance for loan losses
    (2,147 )                 (3,430 )                 (4,357 )            
Other non-interest-earning assets(8)
    12,936                   16,337                   7,481              
                                                                         
Total average non-interest- earning assets
    32,847                   32,208                   24,974              
                                                                         
Total average assets
  W 267,558     W 15,465       5.78 %   W 284,083     W 13,273       4.67 %   W 275,507     W 12,919       4.69 %
                                                                         
 


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    Year ended December 31,  
    2008     2009     2010  
    Average
    Interest
    Average
    Average
    Interest
    Average
    Average
    Interest
    Average
 
    Balance(1)     Expense     Cost     Balance(1)     Expense     Cost     Balance(1)     Expense     Cost  
    (in billions of Won, except percentages)  
 
Liabilities
                                                                       
Interest-bearing liabilities
                                                                       
Deposits:
                                                                       
Demand deposits
  W 25,125     W 75       0.30 %   W 27,652     W 77       0.28 %   W 31,831     W 73       0.23 %
Savings deposits
    15,850       591       3.73       21,423       403       1.88       22,586       418       1.85  
Certificate of deposit accounts
    21,808       1,371       6.28       15,070       775       5.14       8,314       363       4.36  
Other time deposits
    92,498       4,867       5.26       111,828       4,217       3.77       117,390       4,211       3.59  
Mutual installment deposits
    344       13       3.78       257       9       3.32       183       6       3.35  
                                                                         
Total deposits
    155,625       6,917       4.44       176,230       5,481       3.11       180,304       5,071       2.81  
Call money
    3,779       137       3.63       4,576       87       1.90       3,366       49       1.46  
Borrowings from the Bank of Korea
    943       28       3.01       1,376       20       1.36       1,407       22       1.56  
Other short-term borrowings
    13,001       699       5.34       14,002       450       3.21       9,565       139       1.46  
Secured borrowings
    3,838       192       5.00       3,422       143       4.18       3,455       144       4.18  
Long-term debt
    48,747       2,429       4.99       48,610       2,405       4.95       45,434       2,235       4.92  
                                                                         
Total average interest- bearing liabilities
    225,933       10,402       4.60       248,216       8,586       3.46       243,531       7,660       3.15  
Non-interest-bearing liabilities
                                                                       
Demand deposits
    6,132                   4,579                   4,124              
Foreign exchange contracts and derivatives
    10,508                   11,162                   6,211              
Acceptances outstanding
    519                   790                   729              
Other non-interest-bearing liabilities
    11,678                   7,450                   7,648              
                                                                         
Total average non-interest-bearing liabilities
    28,837                   23,981                   18,712              
                                                                         
Total average liabilities
    254,770       10,402       4.08       272,197       8,586       3.15       262,243       7,660       2.92  
Average equity
    12,788                   11,886                   13,264              
                                                                         
Total average liabilities and equity
  W 267,558     W 10,402       3.89 %   W 284,083     W 8,586       3.02 %     275,507       7,660       2.78 %
                                                                         
 
 
(1)   Average balances are based on daily balances for Woori Bank, Kyongnam Bank and Kwangju Bank, and on quarterly balances for all of our other subsidiaries and our special purpose companies.
(2)   Includes dividends received on securities, as well as cash interest received on non-accruing loans.
(3)   Interest income from credit cards is derived from interest-earning credit card receivables, and consists principally of interest on cash advances and card loans.
(4)   Excludes an interest payment of W88 billion we received from the Bank of Korea in 2008 on our deposit of required reserves. This interest payment was excluded as it was a one-time event in response to the global financial crisis and the Bank of Korea generally does not pay interest on its required reserves.
(5)   We do not invest in any tax-exempt securities.
(6)   Includes home equity loans.
(7)   Includes non-accrual loans.
(8)   Includes non-interest-earning credit card receivables, principally monthly lump-sum purchase receivables, the entire balances of which are subject to repayment on the following payment due date.

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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 2009 compared to 2008 and 2010 compared to 2009. 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.
 
                                                 
    2009 vs. 2008
    2010 vs. 2009
 
    Increase/(decrease)
    Increase/(decrease)
 
    due to changes in     due to changes in  
    Volume     Rate     Total(1)     Volume     Rate     Total  
    (in billions of Won)  
 
Interest-earning assets
                                               
Interest-earning deposits in other banks
  W 27     W (11 )   W 16     W 57     W (28 )   W 29  
Call loans and securities purchased under resale agreements
    221       (222 )     (1 )     4       16       20  
Trading securities
    152       (267 )     (115 )     (131 )     92       (39 )
Investment securities
    168       (496 )     (328 )     (26 )     (147 )     (173 )
Loans
                                               
Commercial and industrial
    544       (1,086 )     (542 )     20       (111 )     (91 )
Lease financing
    (4 )     8       4       5       4       9  
Trade financing
    (65 )     14       (51 )     38       (187 )     (149 )
Other commercial
    (113 )     54       (59 )     (37 )     13       (24 )
General purpose household(2)
    27       (1,107 )     (1,080 )     53       (11 )     42  
Mortgage
    26       (73 )     (47 )     19       51       70  
Credit cards
    33       (22 )     11       (20 )     (28 )     (48 )
                                                 
Total interest income
    1,016       (3,208 )     (2,192 )     (18 )     (336 )     (354 )
Interest-bearing liabilities
                                               
Deposits
                                               
Demand deposits
    8       (6 )     2       12       (16 )     (4 )
Savings deposits
    208       (396 )     (188 )     22       (7 )     15  
Certificate of deposit accounts
    (424 )     (172 )     (596 )     (348 )     (64 )     (412 )
Other time deposits
    1,016       (1,666 )     (650 )     210       (216 )     (6 )
Mutual installment deposits
    (3 )     (1 )     (4 )     (3 )           (3 )
Call money
    29       (79 )     (50 )     (23 )     (15 )     (38 )
Borrowings from the Bank of Korea
    13       (21 )     (8 )     (1 )     3       2  
Other short-term borrowings
    49       (298 )     (249 )     (143 )     (168 )     (311 )
Secured borrowings
    (21 )     (28 )     (49 )     1             1  
Long-term debt
    (2 )     (22 )     (24 )     (158 )     (12 )     (170 )
                                                 
Total interest expense
    873       (2,689 )     (1,816 )     (431 )     (495 )     (926 )
                                                 
Net interest income
  W 143     W (519 )   W (376 )   W 413     W 159     W 572  
                                                 
 
 
(1)   Excludes an interest payment of W88 billion we received from the Bank of Korea in 2008 on our deposit of required reserves. This interest payment was excluded as it was a one-time event in response to the global financial crisis and the Bank of Korea generally does not pay interest on its required reserves.
(2)   Includes home equity loans.


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Exchange Rates
 
The table below sets forth, for the periods and dates indicated, information concerning the noon buying rate for Won, expressed in Won per one U.S. dollar. The “noon buying rate” is the rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, translations of Won amounts into U.S. dollars in this annual report were made at the noon buying rate in effect on December 31, 2010, which was W1,130.6 to US$1.00. We do not intend to imply that the Won or U.S. dollar amounts referred to herein could have been or could be converted into U.S. dollars or Won, as the case may be, at any particular rate, or at all. On June 17, 2011, the noon buying rate was W1,085.8 = US$1.00.
 
                                 
    Won per U.S. dollar (noon buying rate)  
    Low     High     Average(1)     Period-End  
 
2006
    913.7       1,002.9       954.3       930.0  
2007
    903.2       950.2       929.0       935.8  
2008
    935.2       1,507.9       1,098.7       1,262.0  
2009
    1,149.0       1,570.1       1,274.6       1,163.7  
2010
    1,104.0       1,253.2       1,155.7       1,130.6  
December
    1,130.0       1,155.2       1,145.5       1,130.6  
2011 (through June 17)
    1,065.5       1,135.6       1,102.0       1,085.8  
January
    1,111.0       1,128.1       1,118.9       1,119.1  
February
    1,100.9       1,130.6       1,117.4       1,123.7  
March
    1,097.3       1,135.6       1,119.3       1,097.3  
April
    1,068.4       1,091.8       1,083.2       1,068.4  
May
    1,065.5       1,101.6       1,084.4       1,078.0  
June (through June 17)
    1,076.2       1,091.2       1,082.3       1,085.8  
 
 
Source: Federal Reserve Bank of New York.
(1)   The average of the daily noon buying rates of the Federal Reserve Bank in effect during the relevant period (or portion thereof).
 
Item 3B.  Capitalization and Indebtedness
 
Not Applicable
 
Item 3C. Reasons for the Offer and Use of Proceeds
 
Not Applicable
 
Item 3D. 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 increased from W68,077 billion, or 42.6% of our total loans, as of December 31, 2007 to W81,613 billion, or 42.7% of our total loans, as of December 31, 2010. As of December 31, 2010, on a Korean GAAP basis, Won-denominated loans to small- and medium-sized enterprises that were classified as substandard or below were W3,216 billion, representing 4.3% of such loans to those enterprises. On a Korean GAAP basis, we recorded charge-offs of W865 billion in respect of our Won-denominated loans to small- and medium-sized enterprises in 2010, compared to charge-offs of W862 billion in 2009. 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 through most of 2009 and further increased in 2010. The delinquency ratio for small- and medium-sized enterprises is


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calculated as the ratio of (1) the outstanding balance of such loans in respect of which either principal or interest payments are over due by one month or more to (2) the aggregate outstanding balance of such loans. Our delinquency ratio for such loans denominated in Won on a Korean GAAP basis decreased from 1.4% as of December 31, 2008 to 0.9% as of December 31, 2009 but increased to 1.3% as of December 31, 2010. Our delinquency ratio may increase further in 2011 as a result of, among other things, adverse economic conditions in Korea and globally. See “—Other risks relating to our business—Difficult conditions in the global financial markets could adversely affect our liquidity and performance.” 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, in connection with a government program announced in October 2008 to guarantee certain foreign currency-denominated debt of Korean banks, the Korean government requested Korean banks, including our banking subsidiaries Woori Bank, Kyongnam Bank and Kwangju Bank, to enter into a memorandum of understanding relating to the rationalization of their management operations. Each of Woori Bank, Kyongnam Bank and Kwangju Bank entered into such a memorandum of understanding with the Financial Supervisory Service in November 2008, pursuant to which they were each required, among other things, to help improve the liquidity position of small-and medium-sized enterprises and exporters by providing them with adequate financing and to endeavor to alleviate burdens on low-income debtors by extending maturity dates or by delaying interest payments on their loans. In addition, the Korean government requested Korean banks, including Woori Bank, Kyongnam Bank and Kwangju 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” programs established by Woori Bank, Kyongnam Bank and Kwangju Bank, which are effective through December 31, 2011, 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 by such banks. The overall prospects for the Korean economy in 2011 and beyond remain uncertain, and the Korean government may extend existing policies and initiatives or introduce new policies or initiatives to encourage Korean banks to provide financial support to small- and medium-sized enterprises. Our participation in such government-led initiatives may 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 to a greater extent than large corporate borrowers by fluctuations in the Korean and global economy. 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.
 
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. In recent years, some Korean large corporations have expanded into China and other countries with lower labor costs and other expenses through relocating their production plants and facilities to such countries, which may have a material adverse impact on such small- and medium-sized enterprises.
 
Financial difficulties experienced by small- and medium-sized enterprises as a result of, among other things, adverse economic conditions in Korea and globally, as well as aggressive marketing and intense


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competition among banks to lend to this segment in recent years, have led to a deterioration in the asset quality of our loans to this segment in the past and such factors may lead to a deterioration of asset quality in the future. Any such deterioration would result in increased charge-offs and 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 and shipbuilding companies, and financial difficulties of these companies may adversely impact us.
 
As of December 31, 2010, the total amount of loans provided by us to construction and shipbuilding companies in Korea amounted to W10,948 billion and W3,171 billion, or 5.7% and 1.7% of our total loans, respectively. We also have other exposures to Korean construction and shipbuilding 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 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. In the case of construction companies, we also have potential exposures 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-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 October 2009, we received a reprimand from the Financial Supervisory Service about our prior internal approval processes and the activities of certain responsible officers and employees of Woori Bank’s trust management operations in connection with such commitments, and we took certain remedial actions in response to such reprimand.
 
The construction industry in Korea has experienced a downturn in recent years, due to excessive investment in residential property development projects, stagnation of real property prices and reduced demand for residential property, especially in areas outside of Seoul, including as a result of the deterioration of the Korean economy commencing in the second half of 2008. In October 2008, the Korean government implemented a W9 trillion support package for the benefit of the Korean construction industry, including a program to buy unsold housing units and land from construction companies. The shipbuilding industry in Korea has also experienced a severe downturn in recent years due to a significant decrease in ship orders, primarily due to adverse conditions in the global economy and the resulting slowdown in global trade. In response to the deteriorating financial condition and liquidity position of borrowers in the construction and shipbuilding industries, which were disproportionately impacted by adverse economic developments in Korea and globally, the Korean government implemented a program in the first half of 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 Woori Bank, Kyongnam Bank and Kwangju Bank) and the Korean government. In addition, in June 2010, the Financial Services Commission and the Financial Supervisory Service announced that, following credit risk evaluations conducted by creditor financial institutions (including us) of companies in Korea with outstanding debt of W50 billion or more, 65 companies had been selected by such financial institutions for restructuring in the form of workout, liquidation or court receivership. Of such 65 companies, 16 were construction companies and three were shipbuilding companies. However, there is no assurance that these measures will be successful in stabilizing the Korean construction and shipbuilding industries.
 
Principally as a result of the deterioration in the asset quality of our credit exposures to construction companies (including in the form of real estate project financing loans) and shipbuilding companies and the commencement of workout procedures with respect to a number of these companies in 2010, the ratio of the our non-performing loans to our total loans increased from 1.33% as of December 31, 2009 to 3.06% as of December 31, 2010, and our provision for loan losses increased from W2,408 billion in 2009 to W3,078 billion in 2010. The allowances that we have established against our credit exposures to Korean construction and shipbuilding companies may not be sufficient to cover all future losses arising from these and


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other exposures. If the credit quality of our exposures to Korean construction and shipbuilding companies declines, we may be required to take substantial additional loan loss provisions, which could adversely impact our results of operations and financial condition. Furthermore, although a portion of our loans to construction and shipbuilding companies are secured by collateral, such collateral may not be sufficient to cover uncollectible amounts in respect of such loans.
 
We also have construction-related credit exposures under our project financing loans for real estate development projects in Korea. In light of the general deterioration in the asset quality of real estate project financing loans in Korea in recent years, Korean banks, including Woori Bank, Kyongnam Bank and Kwangju Bank, implemented a uniform set of guidelines regarding the evaluation of real estate development projects and asset quality classification of project financing loans for such projects in September 2010. Under these guidelines, which became effective from the third quarter of 2010, Korean banks are generally required to apply more stringent criteria in evaluating the asset quality of real estate project financing loans. As a result, we may be required to establish additional allowances with respect to our outstanding real estate project financing loans, which could adversely affect our financial condition and results of operations.
 
We have exposure to the largest Korean commercial conglomerates, known as “chaebols,” and, as a result, recent and any future financial difficulties of chaebols may have an adverse impact on us.
 
Of our 20 largest corporate exposures (including loans, debt and equity securities, credit-related commitments and other exposures) as of December 31, 2010, 14 were to companies that were members of the 30 largest chaebols in Korea. As of that date, the total amount of our exposures to the 30 largest chaebols was W35,833 billion, or 13.6% of our total exposures. If the credit quality of our exposures to chaebols declines, we could require additional loan loss provisions, which would hurt our results of operations and financial condition. See “Item 4B. 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.
 
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, 2010, our 20 largest exposures to corporate borrowers totaled W38,629 billion, which represented 14.7% of our total exposures. As of that date, our single largest corporate exposure was to the Korean government, to which we had outstanding credits in the form of debt securities of W11,274 billion, representing 4.3% of our total exposures. Aside from exposure to the Korean government and government-related agencies, our next largest exposure was to STX Offshore & Shipbuilding Co., Ltd., to which we had outstanding exposure of W1,740 billion representing 0.7% of our total exposures. Any deterioration in the financial condition of our large corporate borrowers may require us to take substantial additional provisions and may have a material adverse impact on our results of operations and financial condition.
 
We have exposure to companies that are currently or may in the future be put in restructuring, and we may suffer losses as a result of additional loan loss provisions required or the adoption of restructuring plans with which we do not agree.
 
As of December 31, 2010, our credit exposures to companies that were in workout or corporate restructuring amounted to W2,971 billion or 1.4% of our total credit exposures, of which W1,960 billion or 66.0% was classified as substandard or below and all of which was classified as impaired. As of the same date, our allowances for loan losses on these credit exposures amounted to W1,359 billion, or 45.7% 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, 2010 to companies in workout or


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restructuring amounted to W3,256 billion, or 1.2% 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.
 
We have exposure to member companies of the Kumho Asiana Group, and financial difficulties of these companies may adversely impact us.
 
Several member companies of the Kumho Asiana Group, one of Korea’s largest chaebols, have been experiencing financial difficulties, including as a result of their heavily leveraged acquisition of Daewoo Engineering & Construction Co., Ltd. in 2006 and the subsequent global financial crisis commencing in the second half of 2008. In January 2010, Kumho Tires Co., Inc. and Kumho Industrial Co., Ltd. agreed with their creditors, including us, to begin an out-of-court debt restructuring program under the Corporate Restructuring Promotion Act. In addition, Kumho Petrochemical Co., Ltd. and Asiana Airlines announced that they would undergo a voluntary restructuring, in return for which their creditors, including us, agreed to a suspension of payments on the two companies’ debt until the end of 2010. These four companies are member companies of the Kumho Asiana Group. As of December 31, 2010, our aggregate credit exposures to Kumho Tires, Kumho Industrial, Kumho Petrochemical and Asiana Airlines, consisting primarily of loans extended to such companies and also including other exposures such as project finance-related exposures, amounted to W1,417 billion, of which W460 billion were classified as substandard or below. As of December 31, 2010, our allowances for credit losses with respect to such credit exposures amounted to W60 billion. We also had exposure relating to put options granted to us in connection with our co-investment in Daewoo Engineering & Construction with the Kumho Asiana Group (although such put options are not recorded as part of our assets in our consolidated financial statements prepared under U.S. GAAP). The fair value of our holdings of Daewoo Engineering & Construction shares was W151 billion as of December 31, 2010. Moreover, in the first five months of 2011, we extended additional loans to such companies in the aggregate amount of approximately W34 billion and provided additional guarantees in the aggregate amount of W5 billion. We also converted an aggregate of W113 billion of our loans to such companies into equity interests in such companies in connection with such restructuring programs. Our allowances may not be sufficient to cover all future losses arising from our exposures to these companies. Furthermore, in the event that the financial condition of these companies deteriorates further in the future, we may be required to record additional provisions for credit losses, as well as charge-offs and valuation or impairment losses or losses on disposal, which may have a material adverse effect on our financial condition and results of operations.
 
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 has grown from W59,523 billion as of December 31, 2007 to W63,701 billion as of December 31, 2010. Our credit card portfolio has also increased from W3,325 billion as of December 31, 2007 to W4,354 billion as of December 31, 2010. As of December 31, 2010, our consumer loans and credit card receivables represented 33.3% and 2.3% of our total lending, respectively.
 
The growth in our consumer loan portfolio in recent years, together with adverse economic conditions in Korea and globally, may lead to increasing delinquencies and a deterioration in asset quality. Our consumer loans classified as substandard or below increased from W241 billion, or 0.4% of our consumer loan portfolio, as of December 31, 2007 to W560 billion, or 0.9% of our consumer loan portfolio, as of December 31, 2010. We charged off consumer loans amounting to W109 billion in 2010, as compared to W486 billion in 2009, and recorded provisions in respect of consumer loans of W146 billion in 2010, as compared to W310 billion in 2009. Within our consumer loan portfolio, the outstanding balance of general purpose household loans, which, unlike mortgage or home equity loans, are often unsecured and therefore tend to carry a higher credit risk, has decreased slightly from W30,967 billion, or 52.0% of our total outstanding consumer loans, as of


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December 31, 2007 to W30,759 billion, or 48.3% of our total outstanding consumer loans, as of December 31, 2010.
 
In our credit card segment, outstanding balances overdue by 30 days or more increased from W71 billion, or 2.1% of our credit card receivables, as of December 31, 2007 to W103 billion, or 2.4% of our credit card receivables, as of December 31, 2010. In line with industry practice, we have restructured a portion of our delinquent credit card account balances as loans. As of December 31, 2010, these restructured loans amounted to W34 billion, or 0.8% 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 30 days or more accounted for 3.2% of our credit card balances as of December 31, 2010. We charged off credit card balances amounting to W140 billion in 2010, as compared to W203 billion in 2009, and recorded provisions in respect of credit card balances of W60 billion in 2010, as compared to W125 billion in 2009. Delinquencies may increase in the future as a result of, among other things, adverse economic conditions in Korea, difficulties experienced by other credit card issuers that adversely affect our customers, 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 increase our loan loss provisions and charge-offs and will adversely affect our financial condition and results of operations. In addition, our large exposure to consumer debt 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, 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.
 
In light of adverse conditions in the Korean economy affecting consumers, in March 2009, the Financial Services Commission requested Korean banks, including Woori Bank, Kyongnam Bank and Kwangju Bank, to establish a “pre-workout program,” including a credit counseling and recovery service, for retail borrowers with outstanding short-term debt. The pre-workout program has been in operation since April 2009 and, following successive extensions by the Korean government, is expected to continue until April 2013. Under the pre-workout program, maturity extensions and/or interest reductions are provided for retail borrowers with total loans of less than W500 million who are in arrears on their payments for more than 30 days but less than 90 days. Our participation in such pre-workout program and other 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 60% of the appraised value of collateral (except in areas of high speculation designated by the government where we generally limit our lending to 40% to 60% of the appraised value of collateral) and to periodically re-appraise our collateral, a downturn in the real estate markets in Korea in recent years has resulted in declines in the value of the collateral securing our mortgage and home equity loans. If collateral values decline further in the future, they may not be sufficient to cover uncollectible amounts in respect of our secured loans. Any future 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 take additional loan loss provisions.
 
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


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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 current strategy to take advantage of our integrated financial holding company structure.
 
Our success under a financial holding company structure depends on our ability to take advantage of our large existing base of retail and corporate banking customers and to implement a strategy of developing and cross-selling diverse financial products and services to them. As part of this strategy, we have standardized our subsidiaries’ risk management operations (except with respect to operational risk), including with respect to credit risk management following systems upgrades completed in 2007. We also plan to continue to diversify our product offerings through, among other things, increased marketing of insurance products and expansion of our investment banking and investment trust operations. The continued implementation of these plans may require additional investments of capital, infrastructure, human resources and management attention. This strategy entails certain risks, including the possibility that:
 
  •  we may fail to successfully integrate our diverse systems and operations;
 
  •  we may lack required capital resources;
 
  •  we may fail to attract, develop and retain personnel with necessary expertise;
 
  •  we may face competition from other financial holding companies and more specialized financial institutions in particular segments; and
 
  •  we may fail to leverage our financial holding company structure to realize operational efficiencies and to cross-sell multiple products and services.
 
If our strategy does not succeed, we may incur losses on our investments and our results of operations and financial condition may suffer.
 
We may fail to realize the anticipated benefits relating to our reorganization and integration plan and any future mergers or acquisitions that we may pursue.
 
Our success under a financial holding company structure depends on our ability to implement our reorganization and integration plan and to realize the anticipated synergies, growth opportunities and cost savings from coordinating and, in certain cases, combining the businesses of our various subsidiaries. As part of this plan, between December 2001 and February 2002 we merged the commercial banking business of Peace Bank of Korea into Woori Bank, converted Peace Bank of Korea into a credit card subsidiary, Woori Credit Card, and transferred the credit card business of Woori Bank to Woori Credit Card. We also transferred the credit card business of Kwangju Bank to Woori Credit Card in March 2003. In light of the deteriorating business performance of Woori Investment Bank and with the objective of restructuring the group platform, we merged Woori Investment Bank with Woori Bank in August 2003. In March 2004, in response to the liquidity problems of Woori Credit Card stemming from the deteriorating asset quality of its credit card portfolio, we merged Woori Credit Card with Woori Bank. Although we currently intend for our commercial banking subsidiaries to continue to operate as separate legal entities within our financial holding company structure and to maintain separate loan origination and other functions, we have standardized our subsidiaries’ risk management operations (except with respect to operational risk), including with respect to credit risk management following systems upgrades completed in 2007. In October and December 2004, we also acquired a 27.3% voting interest in LGIS, a leading domestic securities firm. In March 2005, we merged Woori Securities into LGIS and renamed the surviving entity Woori Investment & Securities, which became an equity method investee. See “Item 4B. Business Overview—Business—Capital Markets Activities—Securities Brokerage.” In May 2005, we purchased a 90.0% direct ownership interest in LG Investment Trust Management, or LGITM, from LGIS. We subsequently merged Woori Investment Trust Management, our wholly-owned asset management subsidiary, into LGITM and renamed the surviving entity Woori Asset


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Management, which remains a consolidated subsidiary. In July and September 2005, Woori Asset Management reacquired the remaining 10.0% interest from its minority shareholders. In May 2006, we transferred 30.0% of our interest in Woori Asset Management to Credit Suisse. Following this transfer, we renamed the entity Woori Credit Suisse Asset Management. In October 2009, we reacquired Credit Suisse’s 30.0% interest in Woori Credit Suisse Asset Management and renamed the entity Woori Asset Management. Furthermore, we acquired a 51.4% interest in Hanmi Capital in September 2007, which was subsequently renamed Woori Financial, and acquired a 51.0% interest in LIG Life Insurance in April 2008, which was subsequently renamed Woori Aviva Life Insurance. Woori Financial became a consolidated subsidiary, while we account for Woori Aviva Life Insurance as an equity method investee under U.S. GAAP. As part of our business plan, we, through Woori Bank, Kyongnam Bank and Kwangju Bank, have also entered into bancassurance marketing arrangements with third party insurance companies. See “Item 4B. Business Overview—Business—Other Businesses—Bancassurance.”
 
Separately, on May 17, 2011, the Korean government, through the Public Funds Oversight Committee of the Financial Services Commission, announced its plans to privatize us through a sale of up to the entire 56.97% equity stake (and a minimum of a 30% equity stake) held by the Korean government through the KDIC. Such announcement superceded the prior privatization plans announced in July 2010. According to the latest privatization plan, the sale will be effected by a competitive bidding process open to domestic and foreign investors, with the preliminary bidding process open from May 18, 2011 to June 29, 2011. In its announcement on May 17, 2011, the Korean government further reconfirmed its previously announced intent to cause the memorandum of understanding between us and the KDIC to be amended or terminated upon the completion of the privatization transaction, depending on the KDIC’s shareholding in us after the transaction, to promote our transition to private sector control. Our privatization may result in our merger with, or integration into, another financial institution. However, the implementation of the Korean government’s privatization plan may be delayed or changed depending on a variety of factors, such as domestic and international economic conditions, and there can be no assurance that such privatization plan will be implemented as contemplated or at all.
 
In addition, we purchased certain assets and assumed certain liabilities of Samhwa Mutual Savings Bank through our wholly-owned subsidiary, Woori FG Savings Bank Co., Ltd., which began operating in March 2011. As part of our strategy, we intend to continue to seek opportunities to expand our overseas operations, including potentially through acquisitions and investments in the U.S., Europe and Asia. The integration of our subsidiaries’ separate businesses and operations, as well as those of any companies we may merge with or acquire in the future, could require a significant amount of time, financial resources and management attention, and may result in increased capital requirements and greater credit and other exposures. Moreover, the integration process could disrupt 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 continued implementation of our reorganization and integration plan, as well as any future additional integration plans that we may adopt in connection with our mergers or acquisitions or otherwise, and the realization of the anticipated benefits of our financial holding company structure and any mergers or acquisitions we decide to pursue may be blocked, delayed or reduced as a result of many factors, some of which may be outside our control. These factors include:
 
  •  difficulties in integrating the diverse activities and operations of our subsidiaries or any companies we may merge with or 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, the Financial Investment Services and Capital Markets Act and other regulations on transactions between our company and, or among, our subsidiaries;


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  •  unexpected business disruptions;
 
  •  loss of customers; and
 
  •  labor unrest.
 
Accordingly, we may not be able to realize the anticipated benefits of our current or any future reorganization and integration plan and any future mergers or acquisitions that we pursue or undergo, and our business, results of operations and financial condition may suffer as a result.
 
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. To date, except for credit card, trust management, bancassurance, brokerage and currency transfer fees (including foreign exchange-related commissions) and fees collected in connection with the operation of our investment funds, 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 investment banking and asset management businesses. 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 this aspect of our strategy.
 
In 2007, our subsidiary Woori Bank reduced or waived many of the fees it charges on its banking services, in response to customer demand and to similar measures taken by other commercial banks in Korea. Specifically, Woori Bank reduced or waived its fees on fund transfers through its ATMs, and exempted its fees on fund transfers through its mobile banking services. Woori Bank also waived the fees it charges on the opening of household checking accounts and on the issuance of bankers’ checks and certain tax-related statements. In addition, in March 2008, we began a stockholder benefits program whereby Woori Bank would reduce or waive various fees, including foreign exchange-related commissions and credit card annual membership fees, for holders of ten shares or more of our common stock. These and other fee reduction or waiver measures that we may implement in the future may adversely affect our fee income.
 
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, 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, leverage 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.
 
In the case of dividend distributions, this depends on the financial condition and operating results of our subsidiaries. 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 holding company, we 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, and may disrupt our operations at the holding company level.
 
In addition, creditors of our subsidiaries will generally have claims that are prior to any claims of our creditors with respect to their assets. Furthermore, our inability to sell our securities or obtain funds from our


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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.
 
As a holding company, we 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 banking subsidiaries to pay dividends is subject to regulatory restrictions to the extent that paying dividends would impair each of their nonconsolidated 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 fiscal 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 subject to the 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.
 
In addition, we and our subsidiaries may not be able to pay dividends to the extent that such payments would result in a failure to meet any of the applicable financial targets under our respective memoranda of understanding with the Korea Deposit Insurance Corporation, or the KDIC. See “— Other risks relating to our business—Our failure to meet the financial and other business targets set forth in current terms of the memoranda of understanding among us, our subsidiaries and the KDIC may result in substantial harm to us or our subsidiaries.”
 
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 greater financial resources or more specialized capabilities than 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 and small- and medium-sized customers with the credit quality and on credit terms necessary to maintain or increase our income and profitability.


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In addition, we believe that regulatory reforms, including the Financial Investment Services and Capital Markets Act which became effective in February 2009, and the general modernization of business practices in Korea will lead to increased competition among financial institutions in Korea. We also believe that foreign financial institutions, many of which have greater experience and resources than we do, will seek to compete with us in providing financial products and services either by themselves or in partnership with existing Korean financial institutions. Furthermore, a number of significant mergers and acquisitions in the industry have taken place in Korea over the past decade, including the acquisition of Koram Bank by an affiliate of Citibank in 2004, the acquisition of Korea First Bank by Standard Chartered Bank in April 2005, Chohung Bank’s merger with Shinhan Bank in April 2006 and Hana Financial Group’s agreement in November 2010 to acquire a controlling interest in Korea Exchange Bank from the Lone Star funds. We expect that consolidation in the financial industry will continue. In particular, the Korean government has announced that it plans to privatize the Korea Development Bank. Other financial institutions may seek to acquire or merge with such or other entities, and the financial institutions resulting from this consolidation may, by virtue of their increased size and business scope, provide significantly greater competition for us. 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
 
Difficult conditions in the global financial markets could adversely affect our results of operations and financial condition.
 
During the second and third quarter of 2007, credit markets in the United States started to experience difficult conditions and volatility that in turn affected worldwide financial markets. In particular, in late July and early August 2007, market uncertainty in the U.S. sub-prime mortgage sector increased dramatically and further expanded to other markets such as those for leveraged finance, collateralized debt obligations and other structured products. In September and October 2008, liquidity and credit concerns and volatility in the global financial markets increased significantly with the bankruptcy or acquisition of, and government assistance to, several major U.S. and European financial institutions. These developments resulted in reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the United States and global financial markets. In response to such developments, legislators and financial regulators in the United States and other jurisdictions, including Korea, implemented a number of policy measures designed to add stability to the financial markets, including the provision of direct and indirect assistance to distressed financial institutions. In addition, in line with similar actions taken by monetary authorities in other countries, from the third quarter of 2008 to the first quarter of 2009, the Bank of Korea decreased its policy rate by a total of 325 basis points in order to address financial market instability and to help combat the slowdown of the domestic economy and left the key interest rate unchanged at 2.00% throughout 2009. However, while the rate of deterioration of the global economy has slowed since the second half of 2009, with some signs of stabilization and improvement, the overall prospects for the Korean and global economy in 2011 and beyond remain uncertain. For example, many governments worldwide, in particular in Greece, Portugal, Spain and other countries in southern Europe, have shown signs of fiscal stress and may experience difficulties in meeting their debt service requirements. In addition, recent political instability in various countries in the Middle East and Northern Africa, including in Egypt, Tunisia, Libya and Bahrain, have resulted in volatility and uncertainty in the global financial and energy markets. Moreover, the earthquake and tsunami that occurred in the northeast part of Japan in March 2011 and the resulting releases of radiation from damaged


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nuclear power plants in the area have added to the uncertainty in global economic prospects. Any of these or other developments could potentially trigger another financial and economic crisis. Furthermore, while many governments worldwide are considering or are in the process of implementing “exit strategies,” in the form of reduced government spending, higher interest rates or otherwise, with respect to the economic stimulus measures adopted in response to the global financial crisis, such strategies may, for reasons related to timing, magnitude or other factors, have the unintended consequence of prolonging or worsening global economic and financial difficulties. In light of the high level of interdependence of the global economy, 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 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. From the second half of 2008 to the first half of 2010, the value of the Won relative to major foreign currencies in general and the U.S. dollar in particular fluctuated widely. While such fluctuations have generally stabilized in the second half of 2010 and into 2011, there is no guarantee that they will not occur again in the future. See “Item 3A. Selected Financial Data—Exchange Rates.” A depreciation of the Won will increase our cost in Won 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 adverse global and Korean economic conditions, there has been significant volatility in securities prices, including the stock prices of Korean and foreign companies in which we hold an interest. Such volatility has 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 accounted for under the equity method.
 
Our risk management system may not be effective in mitigating risk and loss.
 
We seek to monitor and manage our risk exposure through a group-wide, standardized risk management system, encompassing a multi-tiered risk management governance structure under our Group Risk Management Committee, standardized credit risk management systems for our banking subsidiaries based on Woori Bank’s centralized credit risk management system called the CREPIA 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 the 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.
 
Our failure to meet the financial and other business targets set forth in current terms of the memoranda of understanding among us, our subsidiaries and the KDIC may result in substantial harm to us or our subsidiaries.
 
Under the current terms of the memoranda of understanding entered into among us, Woori Bank, Kyongnam Bank, Kwangju Bank and the KDIC, we and our subsidiaries are required to meet certain financial and business targets on a semi-annual and/or quarterly basis until the end of 2011. See “Item 4A. History and Development of the Company—History—Relationship with the Korean Government.” As a result of deteriorating economic and financial market conditions in Korea and globally, both we and Woori Bank failed to meet our respective return on assets targets, expense-to-revenue ratio targets and operating income per employee targets as of December 31, 2008. In September 2009, the KDIC imposed an institutional warning on us and Woori Bank, as well as reprimands and warnings on 11 current and former executive officers of Woori Bank, in connection with our and Woori Bank’s failures to meet such financial targets, including as a result of


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losses incurred on collateralized debt obligations and other credit derivatives. In February and October 2010 and February 2011, the KDIC imposed institutional warnings on Woori Bank in connection with its failure to meet its financial targets with respect to operating income per employee as of September 30, 2009 and return on assets and non-performing loan ratio as of June 30 and September 30, 2010, respectively. In October 2010, KDIC imposed an institutional warning on Kyongnam Bank, as well as reprimands and warnings on 10 current and former executive officers of Kyongnam Bank, in connection with certain fraudulent transactions undertaken on behalf of Kyongnam Bank by certain employees and their potential impact on Kyongnam Bank. See “Item 8A. Consolidated Statements and Other Financial Information—Legal Proceedings—Kyongnam Bank.” In April 2011, the KDIC imposed another institutional warning on us and Woori Bank, as well as a warning on the former chief executive officer of Woori Bank, in connection with our and Woori Bank’s failure to meet our financial targets with respect to our return on assets and non-performing loan ratio as of December 31, 2010. We, Woori Bank, Kyongnam Bank and Kwangju Bank entered into a new business normalization plan with new restructuring measures and financial targets with the KDIC in March 2011.
 
If we or our subsidiaries fail to satisfy our obligations under the current or any new memoranda of understanding in the future, the Korean government, through the KDIC, may impose penalties on us or our subsidiaries. These penalties could include the replacement of our senior management, sale of our assets, restructuring of our organization, restrictions on our business, including a suspension or transfer of our business, and elimination or reduction of existing equity. Accordingly, our failure to meet the obligations in the memoranda of understanding may result in harm to our business, financial condition and results of operations.
 
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. These secured borrowings often 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 balance sheet. 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. As of December 31, 2010, the aggregate amount of assets we had provided as collateral for our secured borrowings was W5,237 billion. As of that date, we had established allowances of W19 billion in respect of possible losses on those 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 to the extent those payments or recovery shortfalls exceed our allowances.
 
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 recent years. In late 2008 and early 2009, the Bank of Korea reduced its policy rate by a total of 325 basis points to support Korea’s economy amid the global financial crisis, and left the key interest rate unchanged at 2.00% throughout 2009. In an effort to stem inflation amid improved growth prospects, the Bank of Korea increased its policy rate to 2.25% in July 2010, 2.50% in November 2010, 2.75% in January 2011, 3.00% in March 2011 and 3.25% in June 2011. All else being equal, an increase in interest rates leads 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


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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 rate levels will increase the interest costs of our consumer and corporate borrowers and will adversely affect their ability to make payments on their outstanding loans.
 
Our funding is highly dependent on short-term deposits, which dependence may adversely affect our operations.
 
Our banking subsidiaries meet a significant amount of their funding requirements through short-term funding sources, which consist primarily of customer deposits. As of December 31, 2010, approximately 92.7% 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. Our banking subsidiaries may also be required to seek more expensive sources of short-term and long-term funding to finance their operations. See “Item 5B. Liquidity and Capital Resources—Financial Condition—Liquidity.”
 
Labor union unrest may disrupt our operations and hinder our ability to continue to reorganize and integrate our operations.
 
Most financial institutions in Korea, including our subsidiaries, have experienced periods of labor unrest. As part of our reorganization and integration plan, we have transferred or merged some of the businesses operations of our subsidiaries into one or more entities and implemented other forms of corporate and operational restructuring. We may 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. For example, in July 2004, members of Koram Bank’s labor union engaged in a strike to obtain concessions in connection with the acquisition of Koram Bank by an affiliate of Citibank. Although we did not experience any major labor disputes in connection with the merger of Woori Credit Card with Woori Bank, our employees at Woori Securities staged a one-month strike to protest the merger of Woori Securities into LGIS in March 2005. Actual or threatened labor disputes may in the future disrupt the reorganization and integration 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, 2010, our banking subsidiaries 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 KDIC, the Korea Electric Power Corporation, the Bank of Korea, the Korea Development Bank and the Industrial Bank of Korea) with a total book value of W19,798 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 balance sheet is determined by references to suggested prices posted by Korean rating agencies or the Korea Securities Dealers Association. 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, 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.


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We and our commercial banking subsidiaries may be required to raise additional capital to maintain our capital adequacy ratio or for other reasons, which we or they may not be able to do on favorable terms or at all.
 
Under the capital adequacy requirements of the Financial Services Commission, we, as a bank holding company, are required to maintain a minimum consolidated capital adequacy ratio, which is the ratio of equity capital as a percentage of risk-weighted assets on a consolidated basis, of 8.0%. See “Item 4B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Capital Adequacy” and “Item 5B. Liquidity and Capital Resources—Financial Condition—Capital Adequacy.” In addition, each of our commercial banking subsidiaries is required to maintain a minimum combined Tier I and Tier II capital adequacy ratio of 8.0%, on a consolidated basis. In both cases, Tier II capital is included in calculating the combined Tier I and Tier II capital adequacy ratio up to 100% of Tier I capital. In addition, the current terms of the memoranda of understanding among us, our subsidiaries and the KDIC require us and our subsidiaries to meet specified capital adequacy ratio requirements. See “Item 4A. History and Development of the Company—History—Relationship with the Korean Government.” As of December 31, 2010, our capital ratio and the capital adequacy ratios of our subsidiaries exceeded the minimum levels required by both the Financial Services Commission and these memoranda. However, our capital base and capital adequacy ratio or those of our subsidiaries may deteriorate in the future if our or their results of operations or financial condition deteriorates for any reason, or if we or they are not able to deploy their funding into suitably low-risk assets. To the extent that our subsidiaries fail to maintain their capital adequacy ratios in the future, Korean regulatory authorities may impose penalties on them ranging from a warning to suspension or revocation of their licenses.
 
If our capital adequacy ratio or those of our subsidiaries deteriorate, we or they may be required to obtain additional Tier I or Tier II capital in order to remain in compliance with the applicable capital adequacy requirements. As the financial holding company for our subsidiaries, we may be required to raise additional capital to contribute to our subsidiaries. We or our subsidiaries may not be able to obtain additional capital on favorable terms, or at all. The ability of our company and our subsidiaries to obtain additional capital at any time may be constrained to the extent that banks or other financial institutions in Korea or from other countries are seeking to raise capital at the same time. Depending on whether we or our subsidiaries are obtaining any necessary additional capital, and the terms and amount of any additional capital obtained, holders of our common stock or American depositary shares, or ADSs, may experience a dilution of their interest, or we may experience a dilution of our interest in our subsidiaries.
 
We may face increased capital requirements under the new Basel Capital Accord.
 
Beginning on January 1, 2008, the Financial Supervisory Service implemented the new Basel Capital Accord, referred to as Basel II, in Korea, which has affected the way risk is measured among Korean financial institutions, including our commercial banking subsidiaries. Building upon the initial Basel Capital Accord of 1988, which focused primarily on capital adequacy and asset soundness as a measure of risk, Basel II expands this approach to contemplate additional areas of risk such as operational risk. Basel II also institutes new measures that require our commercial banking subsidiaries to take into account individual borrower credit risk and operational risk when calculating risk-weighted assets.
 
In addition, under Basel II, banks are permitted to follow either a standardized approach or an internal ratings-based approach with respect to calculating capital requirements. Woori Bank has voluntarily chosen to establish and follow an internal ratings-based approach, which is more stringent in terms of calculating risk sensitivity with respect to its capital requirements, while Kyongnam Bank and Kwangju Bank (both of which are in the process of establishing an internal ratings-based approach) currently use a standardized approach. In October 2008, the Financial Supervisory Service approved Woori Bank’s internal ratings-based approach for credit risk. For regulatory reporting purposes, from September 30, 2008, Woori Bank has implemented its internal ratings-based approach for credit risk, beginning with its credit risk with respect to retail, small- and medium-size enterprises and large corporate loans and asset-backed securities portfolios, and plans to further implement its internal ratings-based approach to its specialized lending portfolio upon approval by the Financial Supervisory Service. A standardized approach will be used in measuring credit risk for those classes


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of exposure for which Woori Bank’s internal ratings-based approach has not yet been implemented, as well as for certain classes of exposure (including those to the Korean government, public institutions and other banks) for which the internal ratings-based approach will not be applied. Woori Bank plans to implement an “advanced internal ratings-based approach” for credit risk in the near future. Woori Bank also implemented a standardized approach for operational risk beginning on January 1, 2008, and implemented an “advanced measurement approach” for operational risk in June 2009.
 
While we believe that Woori Bank’s implementation of an internal ratings-based approach in 2008 increased its capital adequacy ratio and led to a decrease in its credit risk-related capital requirements as compared to those under its previous approach under the initial Basel Capital Accord of 1988, there can be no assurance that such internal ratings-based approach under Basel II will not require an increase in Woori Bank’s credit risk capital requirements in the future, which may require it to either improve its asset quality or raise additional capital.
 
In December 2009, the Basel Committee on Banking Supervision introduced a new set of measures to supplement Basel II which include, among others, a requirement for higher minimum capital, introduction of a leverage ratio as a supplementary measure to the capital adequacy ratio and flexible capital requirements for different phases of the economic cycle. Additional details regarding such new measures, including an additional capital conservation buffer and countercyclical capital buffer, liquidity coverage ratio and other supplemental measures, were announced by the Group of Governors and Heads of Supervision of the Basel Committee on Banking Supervision in September 2010. After further impact assessment and observation periods, the Basel Committee on Banking Supervision is expected to begin implementing the new set of measures, referred to as Basel III, from 2013. The timing and scope of implementation of Basel III in Korea remain uncertain. The implementation of Basel III in Korea may have a significant effect on the capital requirements of Korean financial institutions, including our commercial banking subsidiaries.
 
See “Item 5B. Liquidity and Capital Resources—Financial Condition—Capital Adequacy.”
 
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, enforces certain laws and regulations that impose restrictions upon U.S. persons with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of such OFAC sanctions, including Iran. Even though non-U.S. persons are not directly bound by such OFAC sanctions, in recent years OFAC has asserted that such non-U.S. persons can be held liable if they “cause” violations by U.S. persons. The European Union, or E.U., also enforces certain laws and regulations that impose restrictions upon nationals and entities of, and business conducted in, E.U. member states with respect to activities or transactions with certain countries, governments, entities and individuals that are the subject of such E.U. sanctions, including Iran. The United Nations Security Council and other governmental entities also impose similar sanctions.
 
In addition, in July 2010, the United States adopted legislation that expands the potential for U.S. economic sanctions against foreign companies doing business with Iran in certain sectors. The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, or the CISADA, among other things, expands the scope of sanctionable activities relating to the development of petroleum and gas resources in Iran, the export of refined petroleum products to Iran, and the development of refining capacity in Iran. These sanctionable activities could include the provision of goods and services (including financing) in connection with such projects. The CISADA also expands the severity of potential sanctions available under the Iran Sanctions Act, as amended, and imposes mandatory investigation and reporting requirements designed to increase the likelihood of enforcement. A range of sanctions may be imposed on companies that engage in sanctionable activities, including among other things the blocking of any property subject to U.S. jurisdiction in which the sanctioned company has an interest, which could include a prohibition on transactions or dealings involving securities of the sanctioned company.


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Pursuant to the CISADA, the Secretary of the U.S. Treasury has also issued regulations prohibiting or strictly controlling opening or maintaining a correspondent account or a payable-through account in the United States for a foreign financial institution that has been found by the Secretary of the U.S. Treasury to knowingly facilitate Iran’s efforts to acquire weapons of mass destruction, Iran’s support of foreign terrorist groups, the activities of a person subject to relevant United Nations Security Council resolution sanctions, or any significant transaction supporting the Iranian Revolutionary Guard Corps (or an entity designated as an affiliate thereof under the OFAC sanctions) or a financial institution whose property is blocked under the OFAC sanctions due to activities related to weapons of mass destruction or terrorism.
 
Korea has also adopted a sanctions programme targeting Iran in accordance with the series of relevant resolutions adopted by the United Nations Security Council. In particular, in September 2010, the Korean government announced broad sanctions implementation guidelines covering financial, trade, transportation and energy-related activities with Iran, which also included a proposal to facilitate legitimate trade between Korea and Iran through Won-denominated settlement accounts to be opened by Bank Markazi Jomhouri Islami Iran (the Central Bank of Iran, or CBI) at certain Korean banks for such purpose.
 
Woori Bank, our consolidated subsidiary, operates certain accounts for CBI, which were opened pursuant to a service agreement entered into by Woori Bank and CBI in September 2010 to facilitate trade between Korea and Iran. The accounts opened by CBI consist of Won-denominated accounts which are used for the settlement of exports of goods to Iran by Korean exporters and Won, U.S. dollar, euro and Japanese Yen-denominated accounts which are used for the settlement of imports of oil and gas from Iran by Korean importers. By the terms of the service agreement between Woori Bank and CBI, settlement of export and import transaction payments through such accounts opened by CBI are effected by crediting or debiting the relevant amount to or from the applicable accounts while a corresponding payment of funds is made to or from an Iranian bank by CBI, and generally does not involve any actual transfer of the relevant funds from such accounts at Woori Bank to CBI’s accounts in Iran or elsewhere for such settlement. Our commercial banking subsidiaries, including Woori Bank, also provide limited export-import financing services to Korean exporters and importers in connection with their trade transactions with Iran that are permitted under the relevant Korean sanctions, primarily by discounting, advising on or issuing letters of credit, which are settled through the accounts opened by CBI at Woori Bank. Furthermore, our commercial banking subsidiaries occasionally act as recipient bank on behalf of Korean exporters for international money transfers from Iranian importers and maintain a limited number of deposit accounts in Korea for Iranian financial institutions. In addition, Woori Bank may in the future be requested by the Korean government to participate in the settlement, through the accounts opened by CBI at Woori Bank, of certain past trade transactions involving Iran which were frozen prior to the implementation of Iran-related economic sanctions and export controls by the Korean government in 2010.
 
The applicable laws and regulations and banking guidelines of Korea require that trade transactions between Korean and Iranian parties be subject to prior certification and clearance by relevant Korean governmental authorities (or organizations designated thereby) to ensure compliance with Korean economic sanctions and export controls against Iran, and the settlement of payments through the accounts opened by CBI at Woori Bank are not permitted without such prior certification and clearance. While we believe that our activities relating to Iran (including the operation of such accounts) are in compliance with applicable OFAC sanctions, applicable E.U. sanctions and applicable sanctions imposed by the United Nations Security Council and other governmental entities, and we do not believe our activities would be sanctioned under CISADA or the regulations issued pursuant thereto, there is no guarantee that such activities will not be found to constitute sanctionable activities or that we will not be subjected to liability under such sanctions.
 
Our business and reputation could be adversely affected if the U.S. government or other governments were to determine that our Iran-related activities (including the operation of the accounts opened by CBI at Woori Bank) involve sanctionable activity under any of the relevant sanctions. Our investors may also be adversely affected if we are found to violate any of the relevant sanctions, or if any sanctions with which the investors are required to comply results in their investment in us being restricted. If we are sanctioned under the Iran Sanctions Act as amended by CISADA, such sanctions could include the blocking of any property in which we have an interest, which would effectively prohibit all U.S. persons from receiving any payments


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from us or our commercial banking subsidiaries, or otherwise acquiring, holding, withholding, using, transferring, withdrawing, transporting, importing, or exporting any property in which we have any interest.
 
Furthermore, some of our U.S. investors may be required to divest their investments in us under the laws of certain U.S. states or under internal investment policies or may decide for reputational reasons to divest 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 Internet banking services are subject to security concerns relating to the commercial use of the Internet.
 
We provide Internet banking services to our retail and corporate customers, which require sensitive customer information, including passwords and account information, to be transferred over a secure connection on the Internet. However, connections on the Internet, although secure, are not free from security breaches. We may experience security breaches in connection with our Internet banking service in the future, which may result in liability to our customers and third parties and materially and adversely affect our business.
 
We may experience disruptions, delays and other difficulties from our information technology systems.
 
We rely on our information technology systems for our daily operations including billing, effecting online and offline banking transactions and record keeping. We may experience disruptions, delays or other difficulties from our information technology systems, which may have an adverse effect on our business and adversely impact our customers’ confidence in us.
 
The adoption of International Financial Reporting Standards by Korea may adversely affect our reported financial condition and results of operations.
 
Beginning in 2011, all listed companies in Korea are required to prepare their financial statements under International Financial Reporting Standards as issued by the International Accounting Standards Board and adopted by Korea, or IFRS. Accordingly, our quarterly and annual financial statements for 2011 and subsequent years will be prepared in accordance with IFRS. Neither we nor our subsidiaries will publish interim or annual financial information on a U.S. GAAP basis for 2011 and subsequent years. IFRS differs significantly from U.S. GAAP in certain respects. As a result, certain balance sheet and income statement items reflected in our financial statements prepared in accordance with IFRS may differ substantially from those required to be reflected under U.S. GAAP.
 
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.


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Risks relating to government control
 
The KDIC, which is our controlling stockholder, is controlled by the Korean government and could cause us to take actions or pursue policy objectives that may be against your interests.
 
The Korean government, through the KDIC, currently owns 56.97% of our outstanding common stock. So long as the Korean government remains our controlling stockholder, it will have the ability to cause us to take actions or pursue policy objectives that may conflict with the interests of our other stockholders. For example, in order to further its public policy goals, the Korean government could request that we participate with respect to a takeover of a troubled financial institution or encourage us to provide financial support to particular entities or sectors. Such actions or others that are not consistent with maximizing our profits or the value of our common stock may have an adverse impact on our results of operations and financial condition and may cause the price of our common stock and ADSs to decline.
 
In addition, pursuant to the terms of our memorandum of understanding with the KDIC, we are required to take any necessary actions (including share buybacks and payment of dividends) to return to the KDIC the funds it injected into us and our subsidiaries, so long as those actions do not cause a material adverse effect on the normalization of our business operations as contemplated by the memorandum of understanding. Any actions that we take as a result of this requirement may favor the KDIC over our other stockholders and may therefore be against your interests.
 
Risks relating to government regulation and policy
 
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 that policy.
 
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 as a result of the global financial crisis commencing in the second half of 2008 and adverse conditions in the Korean economy affecting consumers, 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.”
 
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.


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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:
 
  •  capital increases or reductions;
 
  •  stock cancellations or consolidations;
 
  •  transfers of business;
 
  •  sales of assets;
 
  •  closures of branch offices;
 
  •  mergers with other financial institutions; 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.
 
In September 2009, the Financial Services Commission imposed an institutional warning on us and Woori Bank in connection with Woori Bank’s losses on collateralized debt obligations and other credit derivatives in recent years. The Financial Services Commission also required Woori Bank to enter into a memorandum of understanding with the Financial Supervisory Service, which was entered into in December 2009 and required Woori Bank to implement specific measures to improve its risk management systems and internal controls (including with respect to its board practices, investment and credit risk management-related processes, compliance monitoring and internal audit practices). In addition, the Financial Services Commission imposed warnings and reprimands on certain of Woori Bank’s current and former executive officers, including current and former chief executive officers of Woori Bank. In October 2010, the Financial Services Commission suspended Kyongnam Bank from accepting new specified money trust accounts for three months and imposed reprimands and warnings on 22 executive officers and employees of Kyongnam Bank in connection with certain fraudulent transactions ostensibly undertaken on behalf of Kyongnam Bank by certain employees, as well as ordering the dismissal of three employees who were principally involved in the incident. See “—Other risks relating to our business—Difficult conditions in the global financial markets could adversely affect our results of operations and financial condition” and “Item 8A. Consolidated Statements and Other Financial Information—Legal Proceedings—Kyongnam Bank.”
 
The Financial Investment Services and Capital Markets Act may result in increased competition in the Korean financial services industry.
 
In July 2007, the National Assembly of Korea enacted the Financial Investment Services and Capital Markets Act, a new law intended to enhance the integration of the Korean capital markets and financial investment products industry, which became effective in February 2009. As a result, our subsidiary banks and other banks in Korea face greater competition in the Korean financial services market from financial investment companies and other non-bank financial institutions. For example, securities companies previously were not permitted to accept deposits other than for purposes of securities investment by customers and may not provide secondary services in connection with securities investments such as settlement and remittance relating to such deposits. However, under the Financial Investment Services and Capital Markets Act, financial investment companies, which replaced securities companies, among others, are able to provide such secondary services. Accordingly, our subsidiary banks and other banks in Korea may experience a loss of customer deposits (which in turn may result in a need to seek alternative funding sources and an increase in our subsidiary banks’ funding costs), as well as a decrease in our subsidiary banks’ settlement and remittance


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service fee income, which may outweigh the benefits to our non-banking subsidiaries under the Financial Investment Services and Capital Markets Act.
 
In addition, we believe it is likely that financial investment companies and other financial industry participants in Korea will seek to take advantage of the greater flexibility provided under the Financial Investment Services and Capital Markets Act to expand their operations in areas that we also plan to develop further, such as investment banking and asset management. As a result, we may face increased competition for customers as well as qualified employees as a result of the new law. The Financial Investment Services and Capital Markets Act is also likely to accelerate the trend toward consolidation and convergence among companies in the Korean financial services industry, which may result in a significant increase in the capital base and geographic reach of some of our competitors in the future. Some of the financial institutions resulting from this consolidation may, by virtue of their increased size and business scope, provide greater competition for us.
 
Risks relating to Korea
 
Unfavorable financial and economic developments in Korea may have an adverse effect on us.
 
We are incorporated in Korea, and substantially all of our operations are located in Korea. As a result, we are subject to political, economic, legal and regulatory risks specific to Korea. The economic indicators in Korea in recent years have shown mixed signs of growth and uncertainty, and future growth of the economy is subject to many factors beyond our control.
 
In recent years, adverse conditions and volatility in the worldwide financial markets, fluctuations in oil and commodity prices and the general weakness of the U.S. and global economy 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—Difficult conditions in the global financial markets could adversely affect our results of operations and financial condition.” From the second half of 2008 to the first half of 2010, the value of the Won relative to major foreign currencies in general and the U.S. dollar in particular fluctuated widely. While such fluctuations have generally stabilized in the second half of 2010 and into 2011, there is no guarantee that they will not occur again in the future. See “Item 3A. Selected Financial Data—Exchange Rates.” A depreciation of the Won increases the cost of imported goods and services and the Won revenue needed by Korean companies to service foreign currency-denominated debt. An appreciation of the Won, on the other hand, causes export products of Korean companies to be less competitive by raising their prices in terms of the relevant foreign currency and reduces the Won value of such export sales. Furthermore, as a result of adverse global and Korean economic conditions, there has been significant volatility in the stock prices of Korean companies. The Korea Composite Stock Price Index (known as the “KOSPI”) declined from 1,897.1 on December 31, 2007 to 938.8 on October 24, 2008. While the KOSPI has largely recovered since late 2008, there is no guarantee that the stock prices of Korean companies will not decline again in the future. Future declines in 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 hurt Korea’s economy in the future include:
 
  •  difficulties in the housing and financial sectors in the United States and elsewhere and the resulting adverse effects on the global financial markets;
 
  •  adverse changes or volatility in foreign currency reserve levels, commodity prices (including oil prices), exchange rates (including fluctuation of the U.S. dollar or Japanese yen exchange rates or revaluation of the Chinese renminbi), interest rates and stock markets;
 
  •  adverse conditions in the economies of countries that are important export markets for Korea, such as the United States, Japan and China, or in emerging market economies in Asia or elsewhere;


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  •  substantial decreases in the market prices of Korean real estate;
 
  •  increasing delinquencies and credit defaults by small- and medium-sized enterprise and consumer borrowers;
 
  •  declines in consumer confidence and a slowdown in consumer spending;
 
  •  difficulties in the financial sector in Korea, including the savings bank sector;
 
  •  the continued emergence of the Chinese economy, to the extent its benefits (such as increased exports to China) are outweighed by its costs (such as competition in export markets or for foreign investment and the relocation of the manufacturing base from Korea to China);
 
  •  social and labor unrest;
 
  •  a decrease in tax revenues and a substantial increase in the Korean government’s expenditures for fiscal stimulus measures, unemployment compensation and other economic and social programs that, together, would lead to an increased government budget deficit;
 
  •  financial problems or lack of progress in the restructuring of chaebols, other large troubled companies, their suppliers or the financial sector;
 
  •  loss of investor confidence arising from corporate accounting irregularities and corporate governance issues at 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;
 
  •  the economic impact of any pending or future free trade agreements;
 
  •  geo-political uncertainty and risk of further attacks by terrorist groups around the world;
 
  •  natural disasters that have a significant adverse economic or other impact on Korea or its major trading partners, such as the earthquake and tsunami that occurred in the northeast part of Japan in March 2011 and any resulting releases of radiation from damaged nuclear power plants in the area;
 
  •  the recurrence of severe acute respiratory syndrome, or SARS, or an outbreak of swine or avian flu or foot-and-mouth disease in Asia and other parts of the world;
 
  •  deterioration in economic or diplomatic relations between Korea and its trading partners or allies, including deterioration resulting from trade disputes or disagreements in foreign policy;
 
  •  political uncertainty or increasing strife among or within political parties in Korea;
 
  •  hostilities or civil unrest involving oil producing countries in the Middle East and Northern Africa and any material disruption in the supply of oil or 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 recent years, there have been heightened security concerns stemming from North Korea’s nuclear weapons and long-range missile programs and increased uncertainty regarding North Korea’s actions and possible responses from the international community.
 
In addition to conducting test flights of long-range missiles, North Korea announced in October 2006 that it had successfully conducted a nuclear test, which increased tensions in the region and elicited strong objections


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worldwide. In response, the United Nations Security Council passed a resolution that prohibits any United Nations member state from conducting transactions with North Korea in connection with any large scale arms and material or technology related to missile development or weapons of mass destruction and from providing luxury goods to North Korea, imposes an asset freeze and travel ban on persons associated with North Korea’s weapons program, and calls upon all United Nations member states to take cooperative action, including through inspection of cargo to or from North Korea. In response, North Korea agreed in February 2007 at the six-party talks to shut down and seal the Yongbyon nuclear facility, including the reprocessing facility, and readmit international inspectors to conduct all necessary monitoring and verifications.
 
In April 2009, North Korea launched a long-range rocket over the Pacific Ocean. Korea, Japan and the United States responded that the launch poses a threat to neighboring nations and that it was in violation of the United Nations Security Council resolution adopted in 2006 against nuclear tests by North Korea, and the United Nations Security Council issued a presidential statement that condemned North Korea for the launch and decided to tighten sanctions against North Korea. Subsequently, North Korea announced that it would permanently pull out of the six party talks and restart its nuclear program, and the International Atomic Energy Agency reported that its inspectors had been ordered to remove surveillance devices and other equipment at the Yongbyon nuclear power plant and to leave North Korea. In May 2009, North Korea announced that it had successfully conducted a second nuclear test and test-fired three short-range surface-to-air missiles. In response, the United Nations Security Council unanimously passed a resolution that condemned North Korea for the nuclear test and decided to expand and tighten sanctions against North Korea. In July 2009, North Korea test-fired several additional ballistic missiles into the sea between Korea and Japan.
 
In March 2010, a Korean warship was destroyed by an underwater explosion, killing many of the crewmen on board. In May 2010, the Korean government formally accused North Korea of causing the sinking and demanded that North Korea apologize for the act and punish those responsible. The Korean government has also been seeking international condemnation against North Korea for the act. North Korea has threatened retaliation for any attempt to punish it over the incident. In November 2010, North Korea reportedly fired more than one hundred artillery shells that hit Korea’s Yeonpyeong Island near the maritime border between Korea and North Korea on the west coast of Korea, killing at least two Korean soldiers and two civilians, wounding many others and setting civilian houses on fire. Korea responded by firing artillery shells back, while putting the military on its highest level of alert in the west coast area. The Korean government condemned North Korea for the act and vowed stern retaliation should there be further provocation.
 
In addition, there recently has been increased uncertainty with respect to the future of North Korea’s political leadership and concern regarding its implications for economic and political stability in the region. In June 2009, U.S. and Korean officials announced that Kim Jong-il, the North Korean ruler who reportedly suffered a stroke in August 2008, designated his third son, Kim Jong-eun, who is reportedly in his twenties, to become his successor. In September 2010, Kim Jong-eun was made a general in the North Korean army, named the vice chairman of the Central Military Commission and appointed to the Central Committee of the Workers’ Party in a series of measures widely believed to be part of the succession plan. The succession plan, however, remains uncertain. In addition, North Korea’s economy faces severe challenges. For example, in November 2009, the North Korean government redenominated its currency at a ratio of 100 to 1 as part of a currency reform undertaken in an attempt to control inflation and reduce income gaps. In tandem with the currency redenomination, the North Korean government banned the use or possession of foreign currency by its residents and closed down privately run markets, which led to severe inflation and food shortages. Such developments may further aggravate social and political tensions within North Korea.
 
There can be no assurance that the level of tension on 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 break down or military hostilities occur, could have a material adverse effect on our operations and the market value of our common stock and ADSs.


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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 was 3.2% in 2007 and 2008, but increased to 3.6% in 2009 primarily as a result of adverse economic conditions in Korea and further increased to 3.7% in 2010. Future 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. These developments would likely have an adverse effect on our financial condition and results of operations.
 
Risks relating to our common stock and ADSs
 
The market price of our common stock and ADSs could be adversely affected by the ability of the KDIC to sell or otherwise dispose of large blocks of our common stock.
 
The KDIC currently owns 459,198,609 shares, or 56.97%, of our outstanding common stock. In the future, the KDIC may choose to sell large blocks of our common stock publicly or privately to a strategic or financial investor, including for the purpose of recovering the public funds it injected into our subsidiaries to recapitalize them. For example, in September 2004, the KDIC sold approximately 45 million shares of our common stock, which constituted 5.7% of our outstanding common stock, and in June 2007, the KDIC disposed of approximately 40 million shares of our common stock, which constituted 5.0% of our outstanding common stock. In addition, in November 2009, the KDIC sold approximately 56 million shares of our common stock, which constituted 7.0% of our outstanding common stock. Most recently, in April 2010, the KDIC disposed of approximately 73 million shares of our common stock, which constituted 9.0% of our outstanding common stock.
 
According to the privatization plans announced by the Korean government, through the Public Funds Oversight Committee of the Financial Services Commission, on May 17, 2011, the KDIC will seek to dispose of up to all of its holdings of our common stock (and a minimum of a 30% equity stake) through a competitive bidding process open to domestic and foreign investors. Our privatization may result in our merger with, or integration into, another financial institution. However, such plans are subject to change depending on market conditions and other factors. Accordingly, we do not know when, how or what percentage of our shares owned by the KDIC will be disposed of, or to whom such shares will be sold, or when, how and with whom we may be merged or integrated. As a result, we cannot predict the impact of any such transactions on us or our stock prices. Any future sales of our common stock or ADSs in the public market or otherwise by the KDIC, or any future merger or integration between us and another financial institution, or the possibility that such transactions may occur, could adversely affect the prevailing market prices of our common stock and ADSs.
 
Ownership of our common stock is restricted under Korean law.
 
Under the Financial Holding Company Act, a single stockholder, together with its affiliates, is generally prohibited from owning more than 10.0% of the outstanding shares of voting stock of a bank holding company such as us that controls nationwide banks, with the exception of certain stockholders that are non-financial business group companies, whose applicable limit is 9.0%. The Korean government and the KDIC are exempt from this limit, and investors may also exceed the 10.0% limit upon approval by the Financial Services Commission. To the extent that the total number of shares of our common stock (including those represented by ADSs) that you and your affiliates own together exceeds the applicable limits, you will not be entitled to exercise the voting rights for the excess shares, and the Financial Services Commission may order you to dispose of the excess shares within a period of up to six months. Non-financial business group companies are required to obtain approval from the Financial Services Commission in order to (i) become the largest shareholder of a bank holding company or (ii) acquire 4% or more of the issued and outstanding shares of voting stock of a bank holding company and participate in the management of such company in the manner prescribed in the Enforcement Decree of the Financial Holding Company Act. If non-financial business group companies hold voting stock of a


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bank holding company in excess of the foregoing limits as a result of unavoidable circumstances, such as sales by other stockholders’ of their shareholding, such non-financial business group companies are required to obtain approval from the Financial Services Commission to hold the portion of shares that exceeds the limit, dispose of such portion or take measures so that they no longer fall under the definition of “non-financial business group companies” under the Financial Holding Company Act. Non-compliance with such requirement will prohibit non-financial business group companies from exercising their voting rights of the shares that exceed the limit and prompt the issuance of an order by the Financial Services Commission directing such non-financial business group companies to dispose of their shares that exceed the limit. Failure to comply with such an order would result in an administrative fine of up to 0.03% of the book value of such shares per day until the date of disposal. See “Item 4B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies—Restrictions on Ownership of a Financial Holding Company.”
 
You will not be able to exercise dissent and appraisal rights unless you have withdrawn the underlying shares of our common stock and become our direct stockholder.
 
In some limited circumstances, including the transfer of the whole or any significant part of our business and the merger or consolidation of us with another company, dissenting stockholders have the right to require us to purchase their shares under Korean law. However, if you hold our ADSs, you will not be able to exercise such dissent and appraisal rights if the depositary refuses to do so on your behalf. Our deposit agreement does not require the depositary to take any action in respect of exercising dissent and appraisal rights. In such a situation, holders of our ADSs must withdraw the underlying common stock from the ADS facility (and incur charges relating to that withdrawal) and become our direct stockholder prior to the record date of the stockholders’ meeting at which the relevant transaction is to be approved, in order to exercise dissent and appraisal rights.
 
You may be limited in your ability to deposit or withdraw common stock.
 
Under the terms of our deposit agreement, holders of common stock may deposit such stock with the depositary’s custodian in Korea and obtain ADSs, and holders of ADSs may surrender ADSs to the depositary and receive common stock. However, to the extent that a deposit of common stock exceeds any limit that we may specify from time to time, that common stock will not be accepted for deposit unless our consent with respect to such deposit has been obtained. We currently have not set any such limit; however, we have the right to do so at any time. Under the terms of the deposit agreement, no consent would be required if the shares of common stock were to be obtained through a dividend, free distribution, rights offering or reclassification of such stock. We have consented, under the terms of the deposit agreement, to any deposit unless the deposit would be prohibited by applicable laws or violate our articles of incorporation. If we choose to impose a limit on deposits in the future, however, we might not consent to the deposit of any additional common stock. In that circumstance, if you surrender ADSs and withdraw common stock, you may not be able to deposit the stock again to obtain ADSs. See “Item 9C. Markets—Restrictions Applicable to Shares.”
 
You will not have preemptive rights in some circumstances.
 
The Korean Commercial Code of 1962, as amended, and our articles of incorporation require us, with some exceptions, to offer stockholders the right to subscribe for new shares of our common stock in proportion to their existing shareholding ratio whenever new shares are issued. If we offer any rights to subscribe for additional shares of our common stock or any rights of any other nature, the depositary, after consultation with us, may make the rights available to holders of our ADSs or use commercially feasible efforts to dispose of the rights on behalf of such holders, in a riskless principal capacity, and make the net proceeds available to such holders. The depositary will make rights available to holders of our ADSs only if:
 
  •  we have requested in a timely manner that those rights be made available to such holders;
 
  •  the depositary has received the documents that are required to be delivered under the terms of the deposit agreement, which may include confirmation that a registration statement filed by us under the U.S. Securities Act of 1933, as amended, is in effect with respect to those shares or that the offering


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  and sale of those shares is exempt from or is not subject to the registration requirements of the Securities Act; and
 
  •  the depositary determines, after consulting with us, that the distribution of rights is lawful and commercially feasible.
 
Holders of our common stock located in the United States may not exercise any rights they receive absent registration or an exemption from the registration requirements under the Securities Act.
 
We are under no obligation to file any registration statement with the U.S. Securities and Exchange Commission or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. If a registration statement is required for you to exercise preemptive rights but is not filed by us or is not declared effective, you will not be able to exercise your preemptive rights for additional ADSs and you will suffer dilution of your equity interest in us. If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or feasible, it will allow the rights to lapse, in which case you will receive no value for these rights.
 
Your dividend payments and the amount you may realize upon a sale of your ADSs will be affected by fluctuations in the exchange rate between the U.S. dollar and the Won.
 
Our common stock is listed on the KRX KOSPI Market and quoted and traded in Won. Cash dividends, if any, in respect of the shares represented by the ADSs will be paid to the depositary in Won and then converted by the depositary into U.S. dollars, subject to certain conditions. Accordingly, fluctuations in the exchange rate between the Won and the U.S. dollar will affect, among other things, the amounts you will receive from the depositary in respect of dividends, the U.S. dollar value of the proceeds that you would receive upon sale in Korea of the shares of our common stock obtained upon surrender of ADSs and the secondary market price of ADSs. Such fluctuations will also affect the U.S. dollar value of dividends and sales proceeds received by holders of our common stock.
 
The market value of your investment may fluctuate due to the volatility of, and government intervention in, the Korean securities market.
 
Our common stock is listed on the KRX KOSPI Market, which has a smaller market capitalization and is more volatile than the securities markets in the United States and many European countries. The market value of ADSs may fluctuate in response to the fluctuation of the trading price of shares of our common stock on the KRX KOSPI Market. The KRX KOSPI Market has experienced substantial fluctuations in the prices and volumes of sales of listed securities and the KRX KOSPI Market has prescribed a fixed range in which share prices are permitted to move on a daily basis. The KOSPI declined from 1,897.1 on December 31, 2007 to 938.8 on October 24, 2008. The KOSPI was 2,031.93 on June 17, 2011. There is no guarantee that the stock prices of Korean companies will not decline again in the future. Like other securities markets, including those in developed markets, the Korean securities market has experienced problems including market manipulation, insider trading and settlement failures. The recurrence of these or similar problems could have a material adverse effect on the market price and liquidity of the securities of Korean companies, including our common stock and ADSs, in both the domestic and the international markets.
 
The Korean government has the potential ability to exert substantial influence over many aspects of the private sector business community, and in the past has exerted that influence from time to time. For example, the Korean government has induced mergers to reduce what it considers excess capacity in a particular industry and has also induced private companies to publicly offer their securities. Similar actions in the future could have the effect of depressing or boosting the Korean securities market, whether or not intended to do so. Accordingly, actions by the government, or the perception that such actions are taking place, may take place or has ceased, may cause sudden movements in the market prices of the securities of Korean companies in the future, which may affect the market price and liquidity of our common stock and ADSs.


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If the Korean government deems that emergency circumstances are likely to occur, it may restrict you and the depositary from converting and remitting dividends and other amounts in U.S. dollars.
 
If the Korean government deems that certain emergency circumstances, including, but not limited to, severe and sudden changes in domestic or overseas economic circumstances, extreme difficulty in stabilizing the balance of payments or implementing currency, exchange rate and other macroeconomic policies, have occurred or are likely to occur, it may impose certain restrictions provided for under the Foreign Exchange Transaction Law, including the suspension of payments or requiring prior approval from governmental authorities for any transaction. See “Item 10D. Exchange Controls—General.”
 
Other Risks
 
You may not be able to enforce a judgment of a foreign court against us.
 
We are a corporation with limited liability organized under the laws of Korea. Substantially all of our directors and officers and other persons named in this annual report reside in Korea, and all or a significant portion of the assets of our directors and officers and other persons named in this annual report and substantially all of our assets are located in Korea. As a result, it may not be possible for you to effect service of process within the United States, or to enforce against them or us in the United States judgments obtained in United States courts based on the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Korea, either in original actions or in actions for enforcement of judgments of United States courts, of civil liabilities predicated on the United States federal securities laws.
 
Item 4.  INFORMATION ON THE COMPANY
 
Item 4A.  History and Development of the Company
 
Overview
 
Woori Finance Holdings was incorporated as Korea’s first financial holding company on March 27, 2001 and commenced commercial operations on April 2, 2001. We were established by the KDIC to consolidate the Korean government’s interests in:
 
  •  four commercial banks (Hanvit Bank (since renamed Woori Bank), Kyongnam Bank, Kwangju Bank and Peace Bank of Korea (since renamed Woori Credit Card and merged with Woori Bank)),
 
  •  one merchant bank (Hanaro Merchant Bank (since renamed Woori Investment Bank and merged with Woori Bank)), and
 
  •  a number of other smaller financial institutions.
 
We were created pursuant to the Financial Holding Company Act, which was enacted in October 2000 and which, together with associated regulations and a related presidential decree, has enabled banks and other financial institutions, including insurance companies, investment trust companies, credit card companies and securities companies, to be organized and managed under the auspices of a single financial holding company.
 
Our legal and commercial name is Woori Finance Holdings Co., Ltd. Our registered office and corporate headquarters are located at 203 Hoehyon-dong, 1-ga, Chung-gu, Seoul, Korea. Our telephone number is 822-2125-2000. Our website address is http://www.woorifg.com.
 
History
 
Establishment of Woori Finance Holdings
 
In response to the financial and economic downturn beginning in late 1997, the Korean government announced and implemented a series of comprehensive policy packages to address structural weaknesses in the Korean economy and the financial sector. As part of these measures, on October 1, 1998, the KDIC purchased 95.0% of the outstanding shares of Hanvit Bank (which was at the time named the Commercial Bank of Korea) and 95.6% of the outstanding shares of Hanil Bank (which was subsequently merged into Hanvit


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Bank). These banks had suffered significant losses in 1997 and 1998. The Korean government took pre-emptive measures to ensure the survival of these and other banks as it believed that bank failures would have a substantial negative impact on the Korean economy.
 
Despite the measures implemented by the government, however, the predecessor operations of substantially all of our subsidiaries recorded significant losses in 1999 and 2000, primarily as a result of high levels of non- performing credits and loan loss provisioning. Based on subsequent audits conducted by the Financial Supervisory Service of a number of Korean commercial and merchant banks, the Financial Services Commission announced in April 2000 that certain financial institutions had a high risk of insolvency and that substantial remedial measures were required.
 
Commercial Banking Operations. The Korean government, through the Financial Services Commission, decided in December 2000 to write down the capital of each of Hanvit Bank (now Woori Bank), Kyongnam Bank, Kwangju Bank and Peace Bank of Korea (which was renamed Woori Credit Card and eventually merged with Woori Bank) to zero. It accomplished this by having the Financial Services Commission issue a capital reduction order with respect to these banks pursuant to its regulatory authority. Under Korean law, the Financial Services Commission has the power to order a distressed financial institution to effect a capital reduction by requiring it either to cancel the whole or a part of the shares held by certain shareholders with or without consideration or to effect a reverse stock-split with respect to the shares owned by certain shareholders. Although the precise requirements of any particular order will vary on a case by case basis, with respect to these banks, the capital reduction order required them to cancel their outstanding shares without providing consideration to shareholders.
 
After that order was issued by the Financial Services Commission, it was ratified by the board of directors of each bank. Immediately following that ratification, each bank published a notice in two newspapers in Korea that informed shareholders who dissented as to the capital reduction that the relevant bank would be required to purchase their shares, so long as they made a request in writing no more than ten business days following the publication date. Each bank purchased the shares owned by dissenting shareholders within two months after receiving those requests, in each case at a price negotiated between the bank and its dissenting shareholders. With respect to each of the four banks, the bank and the dissenting shareholders were unable to agree on a purchase price. Accordingly, an accounting expert determined that price. Although the shareholders of each of Hanvit Bank, Kyongnam Bank and Kwangju Bank subsequently requested, pursuant to Korean law, that a court review and adjust the determined price, the court in each case declined to make any such adjustment.
 
The Korean government also decided to recapitalize these banks by injecting public funds through the KDIC in two parts. The first part of this recapitalization would comprise capital injections of approximately W3.6 trillion, in return for new shares of the relevant banks, to eliminate their capital deficits, while the second part would comprise further capital contributions of approximately W2.6 trillion, without consideration, to increase their capital adequacy ratios to more than 10%. Accordingly, trading of shares of these four commercial banks was suspended in December 2000, and the capital of each was written down to zero after each bank purchased outstanding shares from the then-existing dissenting minority shareholders. On December 22, 2000, the Korean government and the labor unions of the four commercial banks entered into an agreement under which the labor unions consented to a plan to include their respective banks as subsidiaries of a state-run financial holding company that would have full management rights to oversee the restructuring of those banks.
 
In December 2000, the KDIC made initial capital injections to Hanvit Bank (W2,764 billion), Kyongnam Bank (W259 billion), Kwangju Bank (W170 billion) and Peace Bank of Korea (W273 billion), in return for new shares of those banks. The KDIC also agreed to make additional capital contributions, not involving the issuance of new shares, in the future, which were made in September 2001 to Hanvit Bank (W1,877 billion), Kyongnam Bank (W94 billion), Kwangju Bank (W273 billion) and Peace Bank of Korea (W339 billion). These subsequent capital contributions were made pursuant to a memorandum of understanding entered into among the KDIC and the four commercial banks on December 30, 2000. The terms of the memorandum of understanding provided that the four banks would subscribe for bonds issued by the KDIC in an aggregate


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principal amount equal to the capital contribution amount agreed to by the KDIC, and that the KDIC would then pay the subscription price back to the banks as capital contributions. From the perspective of the KDIC, the issuance of the bonds avoided the need to raise additional cash in connection with the capital contributions. From the perspective of the banks, the KDIC bonds qualified as low-risk assets that helped increase their capital adequacy ratios. The KDIC bonds also paid interest at market rates and were liquid instruments that could be readily sold in the market by the banks for cash.
 
Merchant Banking Operations. On November 3, 2000, the KDIC established Hanaro Merchant Bank (which was renamed Woori Investment Bank) to restructure substantially all of the assets and liabilities of four failed merchant banks (Yeungnam Merchant Banking Corporation, Central Banking Corporation, Korea Merchant Banking Corporation and H&S Investment Bank) that were transferred to it.
 
Formation of Financial Holding Company. Partly as a response to perceived inefficiencies in the mechanism by which Korean financial institutions were managed and partly as a first step to divesting itself of its stake in these and other recapitalized financial institutions, the Korean government implemented a number of significant initiatives relating to the Korean financial industry. One of these initiatives, the Financial Holding Company Act, together with associated regulations and a related presidential decree, created a means by which banks and other financial institutions, including insurance companies, investment trust companies, credit card companies and securities companies, could be organized and managed under the auspices of a single financial holding company.
 
In January 2001, Hanvit Bank, Kyongnam Bank, Kwangju Bank, Peace Bank of Korea and Hanaro Merchant Bank agreed in principle to consolidate and become subsidiaries of a new financial holding company. In July 2001, each entity entered into a memorandum of understanding with us, and we entered into a separate memorandum of understanding with the KDIC. These memoranda of understanding along with those entered with between our subsidiaries and the KDIC, which are described in more detail below, established the basis for the relationships among us, our subsidiaries and the KDIC. These memoranda set forth, among other things, financial targets and restructuring objectives that we and our subsidiaries were expected to satisfy in order to create a fully integrated financial services provider and to enable the KDIC to recover the public funds used to recapitalize our subsidiaries. On March 27, 2001, the KDIC transferred all of its shares in each of Hanvit Bank, Kyongnam Bank, Kwangju Bank, Peace Bank of Korea and Hanaro Merchant Bank to our company in exchange for our newly issued shares. Accordingly, we became the sole owner of those subsidiaries. We subsequently listed our shares on the KRX KOSPI Market on June 24, 2002.
 
Pursuant to the terms of the Financial Holding Company Act, we are subject to certain limitations on our activities that would not be applicable to most other Korean corporations. For example, we:
 
  •  may not engage in any business other than managing our subsidiaries;
 
  •  must obtain prior approval from, or file a prior report with, the Financial Services Commission before we can acquire control of another company;
 
  •  must obtain permission from the Financial Services Commission to liquidate or to merge with another company;
 
  •  must inform the Financial Services Commission if there is any change in our officers, directors or largest shareholder; and
 
  •  must inform the Financial Services Commission if we cease to control any of our direct or indirect subsidiaries by disposing of shares in those subsidiaries.
 
See “Item 4B. Business Overview—Supervision and Regulation—Principal Regulations Applicable to Financial Holding Companies.”
 
Relationship with the Korean Government
 
Our relationship with the Korean government is governed by a number of agreements, including in particular the agreements discussed below. In addition, the Korean government, through the KDIC, is our


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