Shares of Woori Bank have been rising rapidly this year with the expectation that the bank would do well in the first year of its privatization. The government sold most of its stake in the bank to multiple private sector investors last November for $2.1 billion.
The government plans to shed the rest of the 18.09 percent stake this year to complete the privatization of the bank, which has been a priority for President Lee Kwang-goo, so that his plan to turn the bank into a holding company can be completed as early as possible. A key part of his strategy involves the bank competing with its rivals likes KB Financial Group and Shinhan Financial Group on an equal basis.
The president is confident that the bank would not have trouble netting 1 trillion won in profit in the first half of the year in toe-to-toe competition with its rivals, with Q1 profit being the largest in six years and Q2 is likely to be on the same level. The bank started posting laudable profits from 2015 when President Lee began his term, amounting to 1.059,3 trillion won, which rose to 1.261,3 trillion won the following year.
The Q1 profit this year came to 637.5 billion won, which may bring the 1st half net profit to exceed 1 trillion won if the current pace is maintained throughout the period.
Some of the factors that helped the bank post such excellent records have been President Lee’s moves to diversify the loan portfolio and to reform the structure of the bank. Lee led the bank to provide loans to individuals and corporations with good potential, rather than those with less risks. The moves cut loans provided to large corporations to 17.1 percent of all loans from 21 percent in 2014, with household loans rising to 47.9 percent from 41 percent, lowering the non-performing loan ratio from 2.1 percent in 2014 to 0.85 percent in the first quarter this year. Lee boasted that ROE stood at 12.67 percent in Q1, highly praising the health of overseas investors, admitting at the same time that the bank still has a lot of tasks to take care of on its way to continue to perform well.
One of the biggest of them is the sale of the government stake still left coming to 18.4 percent, which is being held by the Korea Deposit Insurance Corp. (KDIC) and stands in the way of the bank’s plan to be a holding company. The plan is to have insurance and securities firms as affiliates to reduce dependence on interest earnings to generate profits. Reports said the bank is about to take over Aju Capital and Aju Savings Bank jointly with a number of other investors, from Aju Group through an SPC set up by the bank, for the purpose by buying up to 74 percent or from 310 billion won. The PEF was launched in 2014 with majority shareholders being Aju Industry (71.49 pct); Aju Motors (2.54 pct); and Shinhan Bank (12.85 pct). Other investors in the transaction would include Kium Securities paying 40 billion won; Korea Investment Securities’ 10 billion won; Shinyoung Securities’ 30 billion won; IBK Capital’s 20 billion won; and Woori Bank’s 100 billion won. The rest of the money would be financed from the National Pension Fund, totaling 110 billion won. Woori Bank is slated to submit a proposal at the Board of Directors’ meeting on June 15 for approval. Woori Bank is also slated to take over Aju Savings Bank, which is 100 percent owned by Aju Capital.
Earnings from interest rates fell to around 60 percent of all earnings, which is down from 80 to 90 percent of all earnings when Woori Bank was a member of the Woori Financial Group. The situation shows that the interest earnings provided by Woori Bank will always stay around 60 percent of all earnings of the rival financial groups no matter how well it performs.
President Lee would like to take over insurance, securities and capital management firms through M&As after turning the bank into a holding company this year, leading a financial group, so they can take care of 40 percent of the entire earnings of the group. Woori Bank, Korea's second-biggest bank by assets, on May 4 announced that it posted a 52 percent jump in first-quarter net profit from a year earlier on improved margins and lower costs.
For the three months ended March 31, Woori Bank's net profit soared to 443 billion won ($390 million) from 291 billion won a year earlier, the bank said in a statement.
The net result was higher than the average market forecast of 321 billion won.
A view of the Woori Bank Building in downtown Seoul.(Photos: Woori Bank)