Bond: WOORIB 4.875 28
Fundamental ViewAS OF 16 Feb 2023
- Woori’s performance record had been less consistent than some of its more commercially focused peers, but has shown a good improvement from 2021 onwards. Woori FG posted the strongest profit growth amongst the four FGs in FY22.
- Asset quality is good and credit costs are the lowest amongst the four FGs, but capital at the group level remains weaker.
- Partial ownership by Korea Deposit Insurance Corp (3.6%) and the National Pension Service (8%) has been a credit positive, but KDIC has continuously been selling down and aims to exit completely. Government support continues to be assured if required.
Business DescriptionAS OF 16 Feb 2023
- Woori's predecessor banks were rescued by Korea Deposit Insurance Corporation (KDIC) following the 1997 Asian Financial Crisis.
- Woori Bank is one of the 'Big Four' commercial banks in Korea. It previously owned two regional banks, Kwangju and Kyongnam, but these were spun off in 2014. Woori also sold its stake in Woori Investment Securities, as well as its savings bank and life insurance arms to NH Financial Group.
- Woori set up a HoldCo (Woori FG) in Jan-2019 to expand into more diversified business lines, particularly investment banking. It used to have a HoldCo, but it was dissolved in 2014 when it was merged with Woori Bank.
- Its main subsidiaries are 100%-owned Woori Card and 60%-owned Woori Investment Bank and the group is looking to acquire more non-bank financial businesses. Woori FG acquired 74% of Aju Capital, a vehicle leasing business, in September 2020 and renamed it Woori Financial Capital.
Risk & CatalystsAS OF 16 Feb 2023
- Woori was for many years majority owned by the Korean government via the Deposit Insurance Corporation (KDIC), but the KDIC has steadily been selling down its shareholding and is currently left with 3.6%. That said, Woori remains a large, systemically important bank with strong potential government backing if needed.
- Woori is much less diversified than peers, with most of its earnings coming from the bank; there are relatively small contributions from the card and leasing businesses. As a result, it has been on the lookout for acquisitions, but it has to be particularly mindful of its CET1 ratio, which is ~120-180 bp lower than its peers.
- Asset quality is a key strength with credit costs in the 20-25 bp range from FY21 into FY22.
Key MetricsAS OF 03 Mar 2023
|Pre-Provision Profit ROA||1.14%||0.99%||0.75%||0.90%|
|Woori Bank CET1 Ratio||12.7%||13.0%||13.1%||11.0%|
|Net Interest Margin Bank + Card||1.84%||1.62%||1.57%||1.70%|
CreditSights ViewAS OF 16 Feb 2023
We have a Market perform recommendation on Woori financial Group (Woori FG). Woori FG was for some years the weakest of Korea’s Big 4 Financial Groups with a less consistent track record of managing risk and returns. Its capital at the group level is still ~170bp weaker than KBFG and Hana FG as it faced difficulty raising new equity while the government was in the process of selling down its stake – it still holds 3.6%, with the aim of exiting completely. It is lower at the bank level too. But we see the levels as acceptable, and government support is expected if needed. Its performance showed an improvement for a few years, fell behind the others in 2020, and has again improved substantially. Asset quality has been sound. In FY22, it showed the best net income growth performance.
Recommendation Reviewed: February 20, 2023
Recommendation Changed: April 24, 2017