Exhibit 99.2
WOORI FINANCIAL GROUP INC.
SEPARATE INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2020 AND FOR THE THREE-MONTH AND NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 2020 AND FOR THE THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 2019 AND THE PERIOD FROM
JANUARY 11, 2019 (DATE OF INCORPORATION) TO SEPTEMBER 30, 2019
WOORI FINANCIAL GROUP INC.
Page(s) | ||||
Report on Review of Separate Interim Financial Statements | 1-2 | |||
Separate Interim Financial Statements | ||||
Separate Interim Statements of Financial Position | 4 | |||
Separate Interim Statements of Comprehensive Income | 5 | |||
Separate Interim Statements of Changes in Equity | 6 | |||
Separate Interim Statements of Cash Flows | 7-8 | |||
Notes to the Separate Interim Financial Statements | 9-44 |
Report on Review of Separate Interim Financial Statements
English Translation of a Report Originally Issued in Korean
To the Shareholders and the Board of Directors of Woori Financial Group Inc.
Reviewed Financial Statements
We have reviewed the accompanying separate interim financial statements of Woori Financial Group Inc. (the “Company”). These financial statements consist of the separate interim statement of financial position of the Company as at September 30, 2020 and the related separate interim statements of comprehensive income for the three-month and nine-month periods ended September 30, 2020, and separate interim statements of changes in equity and cash flows for the nine-month period ended September 30, 2020, and a summary of significant accounting policies and other explanatory notes, expressed in Korean won.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these separate interim financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (“Korean IFRS”) 1034 Interim Financial Reporting, and for such internal control as management determines is necessary to enable the preparation of separate interim financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to issue a report on these separate interim financial statements based on our review.
We conducted our review in accordance with quarterly or semi-annual review standards established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Korean Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe the accompanying separate interim financial statements are not presented fairly, in all material respects, in accordance with Korean IFRS 1034 Interim Financial Reporting.
Emphasis of Matters
Without qualifying our conclusion, we draw attention to Note 3 of the financial statements, which indicates that the outbreak of COVID-19 in 2020 may have a negative impact on the Company’s financial condition and results of operations.
Other Matters
The separate interim financial statements of comprehensive income for the three-month period ended September 30, 2019, and separate interim statements of comprehensive income, changes in equity and cash flows for the period from January 11, 2019 (date of incorporation) to September 30, 2019, presented herein for comparative purposes, were reviewed by Deloitte Anjin LLC whose report dated November 14, 2019. Based on their review, nothing has come to their attention that causes them to believe the accompanying financial statements do not present fairly, in all material respects, in accordance with Korean IFRS 1034 Interim Financial Reporting.
The separate financial statements of the Company for the year ended December 31, 2019, were audited by Deloitte Anjin LLC who expressed an unqualified opinion on those statements, not presented herein, on March 16, 2020. The separate statement of financial position as at December 31, 2019, presented herein for comparative purposes, is consistent, in all material respects, with the above audited statement of financial position as at December 31, 2019.
/s/ Samil PricewaterhouseCoopers
November 13, 2020
Notice to Readers
This report is effective as of November 13, 2020 the review report date. Certain subsequent events or circumstances may have occurred between the review report date and the time the review report is read. Such events or circumstances could significantly affect the separate interim financial statements and may result in modifications to the review report.
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WOORI FINANCIAL GROUP INC.
SEPARATE INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2020 AND FOR THE THREE-MONTH AND NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 2020 AND FOR THE THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 2019 AND THE PERIOD FROM JANUARY 11, 2019
(DATE OF INCORPORATION) TO SEPTEMBER 30, 2019
The accompanying separate interim financial statements including all footnote disclosures
were prepared by, and are the responsibility of, the management of Woori Financial Group Inc.
Tae Seung Sohn
President and Chief Executive Officer
Main Office Address: (Road Name Address) 51, Sogong-ro, Jung-gu, Seoul
(Phone Number) 02-2125-2000
WOORI FINANCIAL GROUP INC.
SEPARATE INTERIM STATEMENTS OF FINANCIAL POSITION
AS OF SEPTEMBER 30, 2020 (UNAUDITED) AND DECEMBER 31, 2019
September 30, 2020 | December 31, 2019 | |||||||
(Korean Won in millions) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents (Notes 5 and 30) | 97,695 | 43,670 | ||||||
Financial assets at fair value through profit or loss (“FVTPL”) (Notes 4, 6, 9 and 18) | 9,434 | 9,434 | ||||||
Financial assets at fair value through other comprehensive income (“FVTOVI”) (Notes 4, 7 and 9) | 150,528 | — | ||||||
Loans and other financial assets at amortized cost (Notes 4, 8, 9 and 30) | 993,777 | 1,269,203 | ||||||
Investments in subsidiaries (Notes 10 and 30) | 20,873,593 | 19,873,593 | ||||||
Premises and equipment (Notes 11 and 30) | 8,301 | 7,383 | ||||||
Intangible assets (Note 12) | 5,428 | 3,310 | ||||||
Deferred tax assets (Note 27) | 692 | — | ||||||
Other assets (Note 13) | 264 | — | ||||||
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Total assets | 22,139,712 | 21,206,593 | ||||||
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LIABILITIES | ||||||||
Debentures (Notes 4, 9 and 14) | 1,147,410 | 947,679 | ||||||
Provisions (Note 15) | 718 | 600 | ||||||
Net defined benefit liability (Note 16) | 9,146 | 3,482 | ||||||
Current tax liabilities (Note 27) | 89,437 | 133,526 | ||||||
Deferred tax liabilities (Note 27) | — | 154 | ||||||
Other financial liabilities (Notes 4, 9, 17, 30 and 31) | 9,807 | 10,745 | ||||||
Other liabilities (Notes 17 and 30) | 1,170 | 4,142 | ||||||
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Total liabilities | 1,257,688 | 1,100,328 | ||||||
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EQUITY (Note 19) | ||||||||
Capital stock | 3,611,338 | 3,611,338 | ||||||
Hybrid securities | 1,695,821 | 997,544 | ||||||
Capital surplus | 14,874,084 | 14,874,084 | ||||||
Other equity | (1,868 | ) | (631 | ) | ||||
Retained earnings | 702,649 | 623,930 | ||||||
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Total equity | 20,882,024 | 20,106,265 | ||||||
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Total liabilities and equity | 22,139,712 | 21,206,593 | ||||||
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The accompanying notes are part of this interim financial statement.
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WOORI FINANCIAL GROUP INC.
SEPARATE INTERIM STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE-MONTH AND NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020 AND FOR
THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2019
AND THE PERIOD FROM JANUARY 11, 2019 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 2019 (UNAUDITED)
2020 | 2019 | |||||||||||||||
For the three-month period ended September 30, 2020 | For the nine-month period ended September 30, 2020 | For the three-month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
(Korean Won in millions, except for per share data) | ||||||||||||||||
Interest income | 1,299 | 8,998 | 3,472 | 3,981 | ||||||||||||
Interest expense | (5,718 | ) | (16,749 | ) | (2,353 | ) | (3,216 | ) | ||||||||
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Net interest income (Notes 9, 21 and 30) | (4,419 | ) | (7,751 | ) | 1,119 | 765 | ||||||||||
Fees and commissions income | — | — | — | — | ||||||||||||
Fees and commissions expense | (2,562 | ) | (10,730 | ) | (2,513 | ) | (9,925 | ) | ||||||||
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Net fees and commissions loss (Notes 22 and 30) | (2,562 | ) | (10,730 | ) | (2,513 | ) | (9,925 | ) | ||||||||
Dividend income (Notes 23 and 30) | 1,290 | 679,085 | — | 676,000 | ||||||||||||
Provision of impairment losses due to credit loss (Notes 24 and 30) | (183 | ) | (174 | ) | — | — | ||||||||||
General and administrative expenses (Notes 25 and 30) | (13,488 | ) | (41,642 | ) | (9,624 | ) | (30,234 | ) | ||||||||
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Operating income (loss) | (19,362 | ) | 618,788 | (11,018 | ) | 636,606 | ||||||||||
Other non-operating expense | (200 | ) | (220 | ) | (155 | ) | (755 | ) | ||||||||
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Non-operating expense (Note 26) | (200 | ) | (220 | ) | (155 | ) | (755 | ) | ||||||||
Net income (loss) before income tax expense | (19,562 | ) | 618,568 | (11,173 | ) | 635,851 | ||||||||||
Income tax income (Note 27) | (1,436 | ) | (378 | ) | (232 | ) | (639 | ) | ||||||||
Net income (loss) | (18,126 | ) | 618,946 | (10,941 | ) | 636,490 | ||||||||||
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Net gain on valuation of equity securities at FVTOCI | 191 | 383 | — | — | ||||||||||||
Remeasurement loss related to defined benefit plan | (659 | ) | (1,620 | ) | (316 | ) | (761 | ) | ||||||||
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Items that will not be reclassified to profit or loss: | (468 | ) | (1,237 | ) | (316 | ) | (761 | ) | ||||||||
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Other comprehensive loss, net of tax | (468 | ) | (1,237 | ) | (316 | ) | (761 | ) | ||||||||
Total comprehensive income (loss) | (18,594 | ) | 617,709 | (11,257 | ) | 635,729 | ||||||||||
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Earnings per share (Note 28) | ||||||||||||||||
Basic and diluted earnings per share (In Korean Won) | (45 | ) | 809 | (21 | ) | 926 |
The accompanying notes are part of this interim financial statement.
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WOORI FINANCIAL GROUP INC.
SEPARATE INTERIM STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020
AND FOR THE PERIOD FROM JANUARY 11, 2019 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 2019 (UNAUDITED)
Capital stock | Capital surplus | Hybrid securities | Other equity | Retained earnings | Total equity | |||||||||||||||||||
(Korean Won in millions) | ||||||||||||||||||||||||
January 11, 2019 (Date of incorporation) | 3,400,822 | 14,565,637 | — | — | — | 17,966,459 | ||||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||
Net income | — | — | — | — | 636,490 | 636,490 | ||||||||||||||||||
Remeasurement loss related to defined benefit plan | — | — | — | (761 | ) | — | (761 | ) | ||||||||||||||||
Transactions with owners | ||||||||||||||||||||||||
Comprehensive stock exchange(Note 1) | 210,516 | 309,460 | — | — | — | 519,976 | ||||||||||||||||||
New stocks issue cost | — | (3,034 | ) | — | — | — | (3,034 | ) | ||||||||||||||||
Issuance of hybrid securities | — | — | 498,783 | — | — | 498,783 | ||||||||||||||||||
Dividends to hybrid securities | — | — | — | — | (3,572 | ) | (3,572 | ) | ||||||||||||||||
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September 30, 2019 (Unaudited) | 3,611,338 | 14,872,063 | 498,783 | (761 | ) | 632,918 | 19,614,341 | |||||||||||||||||
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January 01, 2020 | 3,611,338 | 14,874,084 | 997,544 | (631 | ) | 623,930 | 20,106,265 | |||||||||||||||||
Total comprehensive income | ||||||||||||||||||||||||
Net income | — | — | — | — | 618,946 | 618,946 | ||||||||||||||||||
Net gain on valuation of equity securities at FVTOCI | — | — | — | 383 | — | 383 | ||||||||||||||||||
Remeasurement loss related to defined benefit plan | — | — | — | (1,620 | ) | — | (1,620 | ) | ||||||||||||||||
Transactions with owners | ||||||||||||||||||||||||
Dividends to common stocks | — | — | — | — | (505,587 | ) | (505,587 | ) | ||||||||||||||||
Issuance of hybrid securities | — | — | 698,277 | — | — | 698,277 | ||||||||||||||||||
Dividends to hybrid securities | — | — | — | — | (34,640 | ) | (34,640 | ) | ||||||||||||||||
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September 30, 2020 (Unaudited) | 3,611,338 | 14,874,084 | 1,695,821 | (1,868 | ) | 702,649 | 20,882,024 | |||||||||||||||||
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The accompanying notes are part of this interim financial statement.
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WOORI FINANCIAL GROUP INC.
SEPARATE INTERIM STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020
AND FOR THE PERIOD FROM JANUARY 11, 2019 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 2019 (UNAUDITED)
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
(Korean Won in millions) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | 618,946 | 636,490 | ||||||
Adjustments to net income: | ||||||||
Income tax expense (income) | (378 | ) | (639 | ) | ||||
Interest income | (8,998 | ) | (3,981 | ) | ||||
Interest expense | 16,749 | 3,216 | ||||||
Dividend income | (679,085 | ) | (676,000 | ) | ||||
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(671,712 | ) | (677,404 | ) | |||||
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Additions of expenses not involving cash outflows: | ||||||||
Provision of impairment losses due to credit loss | 174 | — | ||||||
Retirement benefit | 2,844 | 4,582 | ||||||
Depreciation and amortization | 3,943 | 2,915 | ||||||
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6,961 | 7,497 | |||||||
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Changes in operating assets and liabilities: | ||||||||
Loans and other financial assets at amortized cost | 43,263 | (421,082 | ) | |||||
Other assets | (265 | ) | (184 | ) | ||||
Net defined benefit liability | 586 | — | ||||||
Other financial liabilities | (44,569 | ) | (12,339 | ) | ||||
Other liabilities | (2,971 | ) | 4,680 | |||||
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(3,956 | ) | (428,925 | ) | |||||
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Interest income received | 11,688 | 2,978 | ||||||
Interest expense paid | (16,459 | ) | (2,205 | ) | ||||
Dividends received | 679,085 | 676,000 | ||||||
Income tax paid | (199 | ) | — | |||||
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674,115 | 676,773 | |||||||
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Net cash provided by operating activities | 624,354 | 214,431 | ||||||
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Cash flows from investing activities: | ||||||||
Cash in-flows from investing activities: | ||||||||
Decrease on other investment assets | 1,530,000 | — | ||||||
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1,530,000 | — | |||||||
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Cash out-flows from investing activities: | ||||||||
Acquisition of investments in subsidiaries | 1,000,000 | 1,146,635 | ||||||
Acquisition of financial assets at FVTOCI | 150,000 | — | ||||||
Acquisition of premises and equipment | 2,718 | 6,596 | ||||||
Acquisition of intangible assets | 2,948 | 4,630 | ||||||
Increase on guarantee deposits for leases | 709 | 955 | ||||||
Increase on other investment assets | 1,300,000 | — | ||||||
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2,456,375 | 1,158,816 | |||||||
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Net cash used in investing activities | (926,375 | ) | (1,158,816 | ) | ||||
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(Continued)
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WOORI FINANCIAL GROUP INC.
SEPARATE INTERIM STATEMENTS OF CASH FLOWS
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020
AND FOR THE PERIOD FROM JANUARY 11, 2019 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 2019 (UNAUDITED) (CONTINUED)
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
(Korean Won in millions) | ||||||||
Cash flows from financing activities: | ||||||||
Cash in-flows from financing activities: | ||||||||
Increase in borrowings | — | 64,769 | ||||||
Issuance of debentures | 199,556 | 698,171 | ||||||
Issuance of hybrid securities | 698,277 | 498,783 | ||||||
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897,833 | 1,261,723 | |||||||
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Cash out-flows from financing activities: | ||||||||
Decrease in borrowings | — | 64,769 | ||||||
Redemption of lease liabilities | 1,560 | 953 | ||||||
New stock issue cost | — | 3,034 | ||||||
Dividends paid to hybrid securities | 34,640 | — | ||||||
Dividends paid | 505,587 | — | ||||||
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541,787 | 68,756 | |||||||
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Net cash provided by financing activities | 356,046 | 1,192,967 | ||||||
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Net increase in cash and cash equivalents | 54,025 | 248,582 | ||||||
Cash and cash equivalents, beginning of the period | 43,670 | — | ||||||
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Cash and cash equivalents, end of the period (Note 5) | 97,695 | 248,582 | ||||||
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The accompanying notes are part of this interim financial statement.
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WOORI FINANCIAL GROUP INC.
NOTES TO SEPARATE INTERIM FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2020 AND 2019 (UNAUDITED)
1. | GENERAL |
(1) | Summary of the parent company |
Woori Financial Group, Inc. (hereinafter referred to the “Company”) is primarily aimed at controlling subsidiaries that operate in the financial industry or those that are closely related to the financial industry through the ownership of shares and was established on January 11, 2019 under the Financial Holding Company Act through the comprehensive transfer with shareholders of Woori Bank, Woori FIS Co., Ltd., Woori Finance Research Institute Co., Ltd., Woori Credit Information Co., Ltd., Woori Fund Services Co., Ltd. and Woori Private Equity Asset Management Co. Ltd. The headquarters of the Company is located at 51, Sogong-ro, Jung-gu, Seoul, Korea, and the capital is 3,611,338 million won as of September 30, 2020 while the Korea Deposit Insurance Corp. (“KDIC”), the Company’s largest shareholder, owns 124,604,797 shares (17.25%) of the Company’s stocks issued. The Company’s stocks were listed on the Korea Exchange on February 13, 2019, and its American Depository Shares (“ADS”) are also being traded as the underlying common stock on the New York Stock Exchange since the same date.
The details of stock transfer from the Company and subsidiaries as of incorporation are as follows (Unit: Number of shares):
Stock transfer company | Total number of issued shares | Exchange ratio per share | Number of Parent company’s stocks | |||||||||
Woori Bank | 676,000,000 | 1.0000000 | 676,000,000 | |||||||||
Woori FIS Co., Ltd. | 4,900,000 | 0.2999708 | 1,469,857 | |||||||||
Woori Finance Research Institute Co., Ltd. | 600,000 | 0.1888165 | 113,289 | |||||||||
Woori Credit Information Co., Ltd. | 1,008,000 | 1.1037292 | 1,112,559 | |||||||||
Woori Fund Service Co., Ltd. | 2,000,000 | 0.4709031 | 941,806 | |||||||||
Woori Private Equity Asset Management Co., Ltd. | 6,000,000 | 0.0877992 | 526,795 |
As of August 1, 2019, the Company acquired a 73% interest in Woori Asset Management Co. (Formerly Tongyang Asset Management Corp.). The remaining payment was completed in August, 2019 after the request for the change of major shareholder was approved by the Financial Service Commission in July, 2019 and the Company gained 100% control of Woori Global Asset Management Co., Ltd. (formerly ABL Global Asset Management Co., Ltd), and added it as a consolidated subsidiary at the end of 2019.
The Company paid 598,391 million won in cash and 42,103,377 new shares of the parent company to acquire 100% interest of Woori Card Co., Ltd. from its subsidiary Woori Bank on September 10, 2019. On the same date, the Company also acquired 59.8% interest of Woori Investment Bank Co., Ltd. from Woori Bank with 392,795 million won in cash.
As of December 30, 2019, the Company acquired 67.2% interests in Woori Asset Trust Co. (formerly Kukje Asset Trust Co.).
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2. | BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES |
The Company’s financial statements are condensed interim financial statements prepared in accordance with Korean IFRS 1034, Interim Financial Reporting for some of periods in which the annual separate financial statements belong. They are also separate financial statements prepared in accordance with Korean IFRS 1027 Separate Financial Statements. It is necessary to use the Company’s annual separate financial statements for the year ended December 31, 2019 for understanding of the accompanying condensed interim financial statements.
1) | Except for the impacts on the newly adopted standards and interpretations explained below, the accounting policies applied in preparing the accompanying condensed interim financial statements have been applied consistently with the annual financial statements as of and for the year ended December 31, 2019. |
• | Amendments to Korean IFRS 1001 Presentation of Financial Statements and Korean IFRS 1008 Accounting policies, changes in accounting estimates and errors – Definition of Material |
The amendments clarify the explanation of the definition of material and amended Korean IFRS 1001 and Korean IFRS 1008 in accordance with the clarified definitions. Materiality is assessed by reference to omission or misstatement of material information as well as effects of immaterial information, and to the nature of the users when determining the information to be disclosed by the Company. The amendment does not have a significant impact on the financial statements.
• | Amendments to Korean IFRS 1103 Business Combination – Definition of a Business |
To consider the integration of the required activities and assets as a business, the amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs and excludes economic benefits from the lower costs. An entity can apply a concentration test, an optional test, where substantially all of the fair value of gross assets acquired is concentrated in a single asset or a group of similar assets, the assets acquired would not represent a business. The amendment does not have a significant impact on the financial statements.
• | Amendments to Korean IFRS 1116 Lease – Practical expedient for COVID-19 Related Rent Exemption, Concessions, Suspension |
The amendment permits lessees, as a practical expedient, not to assess whether particular rent concessions occurring as a direct consequence of the COVID-19 pandemic. For those who applied this accounting treatment shall account for changes in lease payments, such as rent discounts, consistently with the way the standard specifies when those changes are not lease changes.
The Company changed its accounting policies in accordance with the amendments made to IFRS 16. The revised accounting policies were applied retrospectively in accordance with the transitional regulation in IFRS 16. The amendments do not have a significant impact on the financial statements.
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2) | Significant accounting policies and method of computation used in the preparation of the condensed interim financial statements are consistent with those of the annual financial statements for the year ended December 31, 2019, except for the changes due to the application of amendment and enactments of standards described in Note 2.(1) and the one described below. |
• | Income tax expense |
Income tax expense for the interim period is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual tax rate is applied to the pre-tax income.
3. | SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS |
The outbreak of COVID-19 in 2020 has had a significant impact on the global economy including Korea. Financial and economic conditions arising may have a negative impact on the Company’s financial condition and results of operations in various forms both domestically and internationally. The Company is closely monitoring the impact of COVID-19 and will continue to assess the impact COVID-19 will bring to the Company through the duration of effect on the economy and government policies.
The management shall make judgements, estimates and assumptions that affect the application of accounting policies and application of assets, liabilities and revenues and expenses in preparing condensed interim financial statements. Therefore, the actual results may differ from these estimates.
The important judgements by the management on accounting policies and the main sources of estimation uncertainty for preparing condensed interim financial statements are identical to ones used in the Company’s annual separate financial statements for the year ended December 31, 2019, except for the methods of estimation used to determine income tax expense.
4. | RISK MANAGEMENT |
The Company is exposed to various risks that may arise from its operating activities and credit risk, market risk and liquidity risk are the main types of risks. In order to manage such risks, the Risk Management Committee analyzes, assesses, and establishes risk management standards, including policies, guidelines, management systems and decision-making to ensure sound management of the Company.
The Risk Management Committee, Chief Risk Officer (“CRO”) and the Risk Management Department are operated as risk management organizations. The board of directors operates the Risk Management Committee, composed of nonexecutive directors for professional risk management. The Risk Management Committee performs as the top decision-making body for risk management by establishing fundamental risk management policies that are consistent with the Company’s management strategy and by determining the Company’s acceptable level of risk.
CRO assists the Risk Management Committee and operates the Company Risk Management Council, which is composed of the risk management managers of the subsidiaries, to periodically check and improve the external environment and the Company’s risk burden. The Risk Management Department which is independently structured, controls the risk management matter of the Company and reports key risks and assists decision-making.
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(1) | Credit risk |
Credit risk represents the possibility of financial losses incurred when the counterparty fails to fulfill its contractual obligations. The goal of credit risk management is to maintain the Company’s credit risk exposure to a permissible degree and to optimize its rate of return considering such credit risk.
1) Credit risk management
The Company measures expected loss on assets subject to credit risk management and uses it as a management indicator.
2) Maximum exposure to credit risk
The maximum exposure to credit risk is as follows (Unit: Korean Won in millions):
September 30, 2020 | December 31, 2019 | |||||||||
Loans and other financial assets at amortized cost | Banks | 969,912 | 1,228,918 | |||||||
Corporates | 23,865 | 40,285 | ||||||||
|
|
|
| |||||||
Sub-total | 993,777 | 1,269,203 | ||||||||
|
|
|
| |||||||
Financial assets at FVTPL | Derivative assets | 9,434 | 9,434 | |||||||
|
|
|
| |||||||
Total | 1,003,211 | 1,278,637 | ||||||||
|
|
|
|
a) Credit risk exposure by geographical areas
The following tables analyze credit risk exposure by geographical areas (Unit: Korean Won in millions):
September 30, 2020 | December 31, 2019 | |||||||
Korea | Korea | |||||||
Loans and other financial assets at amortized cost | 993,777 | 1,269,203 | ||||||
Financial assets at FVTPL | 9,434 | 9,434 | ||||||
|
|
|
| |||||
Total | 1,003,211 | 1,278,637 | ||||||
|
|
|
|
b) Credit risk exposure by industries
The following tables analyze credit risk exposure by industries, which are finance and insurance, and others in accordance with the Korea Standard Industrial Classification Code as of September 30, 2020 and December 31, 2019 (Unit: Korean Won in millions):
September 30, 2020 | ||||||||||||
Finance and insurance | Others | Total | ||||||||||
Loans and other financial assets at amortized cost | 991,298 | 2,479 | 993,777 | |||||||||
Financial assets at FVPTL | 9,434 | — | 9,434 | |||||||||
|
|
|
|
|
| |||||||
Total | 1,000,732 | 2,479 | 1,003,211 | |||||||||
|
|
|
|
|
|
December 31, 2019 | ||||||||||||
Finance and insurance | Others | Total | ||||||||||
Loans and other financial assets at amortized cost | 1,267,228 | 1,975 | 1,269,203 | |||||||||
Financial assets at FVPTL | 9,434 | — | 9,434 | |||||||||
|
|
|
|
|
| |||||||
Total | 1,276,662 | 1,975 | 1,278,637 | |||||||||
|
|
|
|
|
|
- 12 -
3) Credit risk exposure
The maximum exposure to credit risk by asset quality, except for financial assets at FVTPL as of September 30, 2020 and December 31, 2019 is as follows (Unit: Korean Won in millions):
September 30, 2020 | ||||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Loss allowance | Total, net | |||||||||||||||||||||||||||
Financial assets | Above appropriate credit rating (*1) | Less than a limited credit rating (*3) | Above appropriate credit rating (*2) | Less than a limited credit rating (*3) | ||||||||||||||||||||||||||||
Loans and other financial assets at amortized cost | 994,214 | — | — | — | — | 994,214 | (437 | ) | 993,777 | |||||||||||||||||||||||
Banks | 970,349 | — | — | — | — | 970,349 | (437 | ) | 969,912 | |||||||||||||||||||||||
Corporates | 23,865 | — | — | — | — | 23,865 | — | 23,865 | ||||||||||||||||||||||||
General business | 23,865 | — | — | — | — | 23,865 | — | 23,865 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | 994,214 | — | — | — | — | 994,214 | (437 | ) | 993,777 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Credit grade of corporates are AAA ~ BBB. |
(*2) | Credit grade of corporates are A- ~ BBB. |
(*3) | Credit grade of corporates are BBB- ~ C. |
December 31, 2019 | ||||||||||||||||||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | Loss allowance | Total, net | |||||||||||||||||||||||||||
Financial assets | Above appropriate credit rating (*1) | Less than a limited credit rating (*3) | Above appropriate credit rating (*2) | Less than a limited credit rating (*3) | ||||||||||||||||||||||||||||
Loans and other financial assets at amortized cost | 1,269,466 | — | — | — | — | 1,269,466 | (263 | ) | 1,269,203 | |||||||||||||||||||||||
Banks | 1,229,181 | — | — | — | — | 1,229,181 | (263 | ) | 1,228,918 | |||||||||||||||||||||||
Corporates | 40,285 | — | — | — | — | 40,285 | — | 40,285 | ||||||||||||||||||||||||
General business | 40,285 | — | — | — | — | 40,285 | — | 40,285 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total | 1,269,466 | — | — | — | — | 1,269,466 | (263 | ) | 1,269,203 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*1) | Credit grade of corporates are AAA ~ BBB. |
(*2) | Credit grade of corporates are A- ~ BBB. |
(*3) | Credit grade of corporates are BBB- ~ C. |
- 13 -
(2) | Market risk |
Market risk is the possible risk of loss arising from trading position and non-trading position as a result of the volatility of market factors such as interest rates, stock prices and foreign exchange rates, and the Company’s main market risk is interest rate risk.
The Company estimates and manages risks related to changes in interest rate due to the difference in the maturities of interest-bearing assets and liabilities and discrepancies in the terms of interest rates. Cash flows (both principal and interest), interest bearing assets and liabilities, presented by each re-pricing date, are as follows (Unit: Korean Won in millions):
September 30, 2020 | ||||||||||||||||||||||||||||
Within 3 months (*1) | 4 to 6 months | 7 to 9 months | 10 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
Asset: | ||||||||||||||||||||||||||||
Loans and other financial assets at amortized cost (*1) | 798,345 | 200,600 | — | — | — | — | 998,945 | |||||||||||||||||||||
Financial assets at FVTOCI (*2) | — | — | — | — | — | 150,528 | 150,528 | |||||||||||||||||||||
Sub-total | 798,345 | 200,600 | — | — | — | 150,528 | 1,149,473 | |||||||||||||||||||||
Liability: | ||||||||||||||||||||||||||||
Debentures | 6,100 | 6,100 | 6,100 | 6,100 | 292,688 | 1,033,403 | 1,350,491 | |||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||
Within 3 months (*1) | 4 to 6 months | 7 to 9 months | 10 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
Asset: | ||||||||||||||||||||||||||||
Loans and other financial assets at amortized cost (*1) | 445,070 | 733,330 | — | — | — | — | 1,178,400 | |||||||||||||||||||||
Liability: | ||||||||||||||||||||||||||||
Debentures | 5,486 | 5,486 | 5,486 | 5,487 | 87,780 | 1,049,863 | 1,159,588 |
(*1) | The principal and interest cash flows of cash and cash equivalents are included in the cash flows within three months, with 97,695 million won and 43,670 million won as of September 30, 2020 and December 31, 2019, respectively. |
(*2) | Due to the uncertain timing of the sale, it is included in the section for over 5 years in accordance with the expiration of the remaining contract |
(3) | Liquidity risk |
Liquidity risk refers to the risk that the Company may encounter difficulties in meeting obligations from its financial liabilities.
1) | Liquidity risk management |
Liquidity risk management is to prevent damages from potential liquidity shortages with effective risk management that could arise from mismatching the assets and liabilities or unexpected cash outflows. The financial liabilities in the statement of financial position that are relevant to liquidity risk are incorporated within the scope of risk management.
The Company manages liquidity risk by identifying the maturity gap and such gap ratio through various cash flows analysis (i.e. based on remaining maturity and contract period, etc.).
- 14 -
2) | Maturity analysis of non-derivative financial liabilities |
a) | Cash flows of principals and interests by remaining contractual maturities of non-derivative financial liabilities are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||||||||||||||||||
Within 3 months | 4 to 6 months | 7 to 9 months | 10 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
Debentures | 6,100 | 6,100 | 6,100 | 6,100 | 292,688 | 1,033,403 | 1,350,491 | |||||||||||||||||||||
Lease liabilities | 589 | 175 | 94 | 94 | 291 | — | 1,243 | |||||||||||||||||||||
Other financial liabilities | 3,597 | 929 | 427 | 2,053 | 1,572 | — | 8,578 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 10,286 | 7,204 | 6,621 | 8,247 | 294,551 | 1,033,403 | 1,360,312 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 | ||||||||||||||||||||||||||||
Within 3 months | 4 to 6 months | 7 to 9 months | 10 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
Debentures | 5,486 | 5,486 | 5,486 | 5,487 | 87,780 | 1,049,863 | 1,159,588 | |||||||||||||||||||||
Lease liabilities | 335 | 335 | 335 | 336 | 249 | — | 1,590 | |||||||||||||||||||||
Other financial liabilities | 6,131 | 2,043 | — | 183 | 820 | — | 9,177 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 11,952 | 7,864 | 5,821 | 6,006 | 88,849 | 1,049,863 | 1,170,355 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
b) | Cash flows of principals and interests by expected maturities of non-derivative financial liabilities are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||||||||||||||||||
Within 3 months | 4 to 6 months | 7 to 9 months | 10 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
Debentures | 6,100 | 6,100 | 6,100 | 6,100 | 292,688 | 1,033,403 | 1,350,491 | |||||||||||||||||||||
Lease liabilities | 589 | 175 | 94 | 94 | 291 | — | 1,243 | |||||||||||||||||||||
Other financial liabilities | 3,597 | 929 | 427 | 2,053 | 1,572 | — | 8,578 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 10,286 | 7,204 | 6,621 | 8,247 | 294,551 | 1,033,403 | 1,360,312 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019 | ||||||||||||||||||||||||||||
Within 3 months | 4 to 6 months | 7 to 9 months | 10 to 12 months | 1 to 5 years | Over 5 years | Total | ||||||||||||||||||||||
Debentures | 5,486 | 5,486 | 5,486 | 5,487 | 87,780 | 1,049,863 | 1,159,588 | |||||||||||||||||||||
Lease liabilities | 335 | 335 | 335 | 336 | 249 | — | 1,590 | |||||||||||||||||||||
Other financial liabilities | 6,131 | 2,043 | — | 183 | 820 | — | 9,177 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Total | 11,952 | 7,864 | 5,821 | 6,006 | 88,849 | 1,049,863 | 1,170,355 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 15 -
5. | STATEMENTS OF CASH FLOWS |
(1) | Details of cash and cash equivalents are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Demand deposits | 97,695 | 43,670 |
(2) | Significant transactions of investing activities and financing activities not involving cash inflows and outflows are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Changes in other comprehensive income related to valuation of financial assets at FVTOCI | 383 | — | ||||||
Changes in right-of-use assets due to new contract | 1,312 | 3,439 | ||||||
Changes in lease liabilities due to new contract | 1,197 | 2,812 | ||||||
Comprehensive stock transfer | — | 18,502,760 | ||||||
Changes in accrued dividends of hybrid securities | — | 3,572 |
6. | FINANCIAL ASSETS AT FVTPL |
(1) | Details of financial assets at FVTPL as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Financial assets at fair value through profit or loss mandatorily measured at fair value | 9,434 | 9,434 |
(2) | Financial assets at fair value through profit or loss mandatorily measured at fair value are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Derivatives assets | 9,434 | 9,434 |
(3) | Financial assets at FVTPL designated as upon initial recognition is nil among financial assets at FVTPL as of September 30, 2020 and December 31, 2019. |
- 16 -
7. | FINANCIAL ASSETS AT FVTOCI |
(1) | Details of financial assets at FVTOCI as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Hybrid securities | 150,528 | — |
(2) | Details of equity securities designated as financial assets at FVTOCI as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
Purpose of acquisition | September 30, 2020 | December 31, 2019 | ||||||
Investment for political purpose | 150,528 | — |
8. | LOANS AND OTHER FINANCIAL ASSETS AT AMORTIZED COST |
(1) | Details of loans and other financial assets at amortized cost as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Due from banks | 899,563 | 1,129,738 | ||||||
Other financial assets | 94,214 | 139,465 | ||||||
|
|
|
| |||||
Total | 993,777 | 1,269,203 | ||||||
|
|
|
|
(2) | Details of due from banks are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Due from banks in local currency: | ||||||||
Due from depository banks | 900,000 | 1,130,000 | ||||||
Loss allowance | (437 | ) | (262 | ) | ||||
|
|
|
| |||||
Total | 899,563 | 1,129,738 | ||||||
|
|
|
|
(3) | Changes in the allowance for credit losses and gross carrying amount of due from banks are as follows and it is not applicable for September 30, 2019. (Unit: Korean Won in millions): |
1) | Allowance for credit losses |
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance | (262 | ) | — | — | (262 | ) | ||||||||||
Transfer to 12-month expected credit losses | — | — | — | — | ||||||||||||
Transfer to lifetime expected credit losses | — | — | — | — | ||||||||||||
Transfer to credit-impaired financial assets | — | — | — | — | ||||||||||||
Provision of allowance for credit loss | (175 | ) | — | — | (175 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | (437 | ) | — | — | (437 | ) | ||||||||||
|
|
|
|
|
|
|
|
2) | Gross carrying amount |
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance | 1,130,000 | — | — | 1,130,000 | ||||||||||||
Transfer to 12-month expected credit losses | — | — | — | — | ||||||||||||
Transfer to lifetime expected credit losses | — | — | — | — | ||||||||||||
Transfer to credit-impaired financial assets | — | — | — | — | ||||||||||||
Net increase (decrease) | (230,000 | ) | — | — | (230,000 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | 900,000 | — | — | 900,000 | ||||||||||||
|
|
|
|
|
|
|
|
- 17 -
(4) | Details of other financial assets are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Receivables | 91,627 | 134,891 | ||||||
Accrued income | 931 | 3,641 | ||||||
Lease deposits | 1,656 | 934 | ||||||
Allowance for credit losses | — | (1 | ) | |||||
|
|
|
| |||||
Total | 94,214 | 139,465 | ||||||
|
|
|
|
(5) | Changes in the allowances for credit losses and gross carrying amount of other financial assets are as follows and it is not applicable for September 30, 2019. (Unit: Korean Won in millions). |
1) | Allowance for credit losses |
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance | (1 | ) | — | — | (1 | ) | ||||||||||
Transfer to 12-month expected credit losses | — | — | — | — | ||||||||||||
Transfer to lifetime expected credit losses | — | — | — | — | ||||||||||||
Transfer to credit-impaired financial assets | — | — | — | — | ||||||||||||
Reversal of allowance for credit loss | 1 | — | — | 1 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
|
2) | Gross carrying amount |
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Stage 1 | Stage 2 | Stage 3 | Total | |||||||||||||
Beginning balance | 139,466 | — | — | 139,466 | ||||||||||||
Transfer to 12-month expected credit losses | — | — | — | — | ||||||||||||
Transfer to lifetime expected credit losses | — | — | — | — | ||||||||||||
Transfer to credit-impaired financial assets | — | — | — | — | ||||||||||||
Net increase (decrease) | (45,252 | ) | — | — | (45,252 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Ending balance | 94,214 | — | — | 94,214 | ||||||||||||
|
|
|
|
|
|
|
|
- 18 -
9. | FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
(1) | The fair value hierarchy |
The fair value hierarchy is determined by the levels of judgment involved in estimating fair values of financial assets and liabilities. The specific financial instruments characteristics and market condition such as volume of transactions and transparency are reflected to the market observable inputs. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities. The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value of its financial assets and financial liabilities. Fair value is measured based on the perspective of a market participant. As such, even when market assumptions are not readily available, the Company’s own assumptions reflect those that market participants would use for measuring the assets or liabilities at the measurement date.
The fair value measurement is described in the one of the following three levels used to classify fair value measurements:
• | Level 1—fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. The types of financial assets or liabilities generally included in Level 1 are publicly traded equity securities, derivatives, and debt securities issued by governmental bodies. |
• | Level 2— fair value measurements are those derived from inputs other than quoted prices included within Level 2 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices). The types of financial assets or liabilities generally included in Level 2 are debt securities not traded in active markets and derivatives traded in OTC but not required significant judgment. |
• | Level 3— fair value measurements are those derived from valuation technique that include inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). The types of financial assets or liabilities generally included in Level 3 are non-public securities and derivatives and debt securities of which valuation techniques require significant judgments and subjectivity. |
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of inherent factors of the asset or liability.
(2) | Fair value hierarchy of financial assets and liabilities measured at fair value are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Financial assets at FVTPL | ||||||||||||||||
Derivative assets | — | — | 9,434 | 9,434 | ||||||||||||
Financial assets at FVTOCI | ||||||||||||||||
Hybrid securities | — | — | 150,528 | 150,528 |
December 31, 2019 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Financial assets: | ||||||||||||||||
Financial assets at FVTPL | ||||||||||||||||
Derivative assets | — | — | 9,434 | 9,434 |
Financial assets measured at FVTPL are recognized at fair value. Fair value is the amount that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.
Financial instruments are measured at fair value using a quoted market price in active markets. If there is no active market for a financial instrument, the Company determines the fair value using valuation methods. Valuation methods and input variables for each type of financial instruments are as follows:
- 19 -
Valuation methods | Input variables | |||
Derivatives | The fair value is measured considering the price and volatility of the underlying assets using the Binomial Tree, a commonly used technique in the market | Values of underlying assets, Volatility, Risk-free market return, Corporate bond yield rate | ||
Hybrid securities | The fair value is measured using the Monte Carlo Simulations and the Hull and White model | YTM Matrix, Additive spread by grade, Risk spread by entity, Effective Credit rating, Issuing information by item, Interest rate volatility estimate |
Valuation methods of financial assets and liabilities measured at fair value and classified into Level 3 and significant but unobservable inputs are as follows:
Fair value measurement technique | Type | Significant | Range | Impact of changes in significant | ||||||
Derivative assets | Option valuation model and others | Equity related | Value of underlying assets and volatility | 12.58%~15.38% | Variation of fair value increases as value of underlying assets and volatility increases. | |||||
Hybrid securities | Hull and White model and others | Hybrid securities related | Interest rate (YTM) | Interest rate 0.50 %~ 1.58% Market rate 1.72% ~ 4.39% | Variation of fair value increases as variation of interest rate (YTM) increases. |
The fair value of financial assets classified as level 3 uses external valuation figures.
(3) | Changes in financial assets and liabilities measured at fair value classified into Level 3 are as follows and it is not applicable for September 30, 2019. (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | ||||||||||||||||||||||||||||
Beginning balance | Net Income (loss) | Other comprehensive income | Purchases/ issuances | Disposals/ settlements | Transfer to or out of Level 3 | Ending balance | ||||||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||||||
Financial assets at FVTPL | ||||||||||||||||||||||||||||
Derivative assets | 9,434 | — | — | — | — | — | 9,434 | |||||||||||||||||||||
Financial assets at FVTOCI | ||||||||||||||||||||||||||||
Hybrid securities | — | — | 528 | 150,000 | — | — | 150,528 |
(4) | Sensitivity analysis results on reasonable fluctuation of the significant unobservable input variables for the fair value of Level 3 financial instruments are as follows. |
The sensitivity analysis on financial instruments shows how changes in unobservable inputs affect changes in fair value of the instruments through favorable and unfavorable changes. When the fair value of a financial instrument is affected by more than one unobservable assumption, the below table reflects the most favorable or the most unfavorable changes which resulted from varying the assumptions individually. The sensitivity analysis was performed for equity related derivatives of which fair value changes are recognized as net income and hybrid securities of which fair value changes are recognized as other comprehensive income among level 3 financial instruments.
- 20 -
The following table presents the sensitivity analysis to disclose the effect of reasonably possible volatility on the fair value of a Level 3 financial instruments (Unit: Korean Won in millions):
September 30, 2020 | ||||||||||||||||
Net income (loss) | Other comprehensive income (loss) | |||||||||||||||
Favorable | Unfavorable | Favorable | Unfavorable | |||||||||||||
Financial assets: | ||||||||||||||||
Financial assets at FVTPL | ||||||||||||||||
Derivative assets (*1) | 943 | (943 | ) | — | — | |||||||||||
Financial assets at FVTOCI | ||||||||||||||||
Hybrid securities (*2) | — | — | 7,061 | (6,745 | ) |
(*1) | Fair value changes of equity related derivatives are calculated by increasing or decreasing stock price volatility rate of underlying assets and correlation, which are major unobservable variables, by 10%, respectively. |
(*2) | Fair value changes of hybrid securities are calculated by increasing or decreasing market rate, which is the major unobservable variable, by 1%, respectively. |
December 31, 2019 | ||||||||
Net income (loss) | ||||||||
Favorable | Unfavorable | |||||||
Financial assets: | ||||||||
Financial assets at fair value through profit or loss mandatorily measured at fair value | ||||||||
Derivative assets (*) | 943 | (943 | ) |
(*) | Fair value changes of equity related derivatives are calculated by increasing or decreasing stock price volatility rate of underlying assets and correlation, which are major unobservable variables, by 10%, respectively. |
(5) | Fair value and carrying amount of financial liabilities that are recorded at amortized cost are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||||||||||
Fair value | Carrying amount | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Financial assets: | ||||||||||||||||||||
Loans and other financial assets at amortized cost (*) | — | — | 993,777 | 993,777 | 993,777 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Debentures | — | 1,205,535 | — | 1,205,535 | 1,147,410 | |||||||||||||||
Other financial liabilities (*) | — | — | 8,577 | 8,577 | 8,577 |
(*) | The carrying amount is disclosed at fair value considering the carrying amount as an approximation of fair value. |
December 31, 2019 | ||||||||||||||||||||
Fair value | Carrying amount | |||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||
Financial assets: | ||||||||||||||||||||
Loans and other financial assets at amortized cost (*) | — | — | 1,269,203 | 1,269,203 | 1,269,203 | |||||||||||||||
Financial liabilities: | ||||||||||||||||||||
Debentures | — | 951,387 | — | 951,387 | 947,679 | |||||||||||||||
Other financial liabilities (*) | — | — | 9,177 | 9,177 | 9,177 |
(*) | The carrying amount is disclosed at fair value considering the carrying amount as an approximation of fair value. |
- 21 -
The fair values of financial instruments are measured using quoted market price in active markets. In case there is no active market for financial instruments, the Company determines the fair value using valuation methods. For the disclosed items in which book value is considered to be the approximate value of fair value, valuation techniques and input variables are not disclosed. Valuation techniques and input variables for the fair value of financial liabilities that are recorded at amortized cost are as follows:
Valuation methods | Input variables | |||
Debentures | The fair value is measured by discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Company. | Risk-free market rate, etc. |
(6) | Financial instruments by category |
Carrying amounts of financial assets and liabilities by each category are as follows (Unit: Korean Won in millions):
September 30, 2020 | ||||||||||||||||
Financial assets | Financial assets at FVTPL | Financial assets at FVTOCI | Financial assets at amortized cost | Total | ||||||||||||
Deposits | — | — | 899,563 | 899,563 | ||||||||||||
Hybrid securities | — | 150,528 | — | 150,528 | ||||||||||||
Derivative assets | 9,434 | — | — | 9,434 | ||||||||||||
Other financial assets | — | — | 94,214 | 94,214 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 9,434 | 150,528 | 993,777 | 1,153,739 | ||||||||||||
|
|
|
|
|
|
|
|
December 31, 2019 | ||||||||||||
Financial assets | Financial assets at FVTPL | Financial assets at amortized cost | Total | |||||||||
Deposits | — | 1,129,738 | 1,129,738 | |||||||||
Derivative assets | 9,434 | — | 9,434 | |||||||||
Other financial assets | — | 139,465 | 139,465 | |||||||||
|
|
|
|
|
| |||||||
Total | 9,434 | 1,269,203 | 1,278,637 | |||||||||
|
|
|
|
|
|
September 30, 2020 | December 31, 2019 | |||||||
Financial liabilities | Financial liabilities at amortized cost | Financial liabilities at amortized cost | ||||||
Debentures | 1,147,410 | 947,679 | ||||||
Other financial liabilities | 8,577 | 9,177 | ||||||
|
|
|
| |||||
Total | 1,155,987 | 956,856 | ||||||
|
|
|
|
- 22 -
(7) | Income or expense from financial instruments by category |
Income or expense from financial assets and liabilities by each category for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019 are as follows (Unit: Korean Won in millions):
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Interest Income(expense) | Reversal (Provision) of credit loss | Others | Total | |||||||||||||
Financial assets at FVTOCI | — | — | 1,290 | 1,290 | ||||||||||||
Loans and other financial assets at amortized cost (*) | 8,998 | (174 | ) | — | 8,824 | |||||||||||
Financial liabilities at amortized cost | (16,714 | ) | — | — | (16,714 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (7,716 | ) | (174 | ) | 1,290 | (6,600 | ) | |||||||||
|
|
|
|
|
|
|
|
(*) | 2,780 million won interest income of cash and cash equivalents are included. |
For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||||||
Interest Income(expense) | Reversal (Provision) of credit loss | Others | Total | |||||||||||||
Loans and other financial assets at amortized cost (*) | 3,981 | — | — | 3,981 | ||||||||||||
Financial liabilities at amortized cost | (3,172 | ) | — | — | (3,172 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 809 | — | — | 809 | ||||||||||||
|
|
|
|
|
|
|
|
(*) | 3,584 million won interest income of cash equivalents is included. |
- 23 -
10. | INVESTMENTS IN SUBSIDIARIES |
(1) | Details of Investments in subsidiaries are as follows (Unit: Korean Won in millions and number of shares): |
Subsidiaries | Location | Capital stock | Main business | |||||||
Woori Bank | Korea | 3,581,400 | Finance | |||||||
Woori Card Co., Ltd. | Korea | 896,300 | Finance | |||||||
Woori Investment Bank Co., Ltd. | Korea | 337,100 | Other credit finance | |||||||
Woori FIS Co., Ltd. | Korea | 24,500 | System software development & maintenance | |||||||
Woori Finance Research Institute Co., Ltd. | Korea | 3,000 | Other service business | |||||||
Woori Credit Information Co., Ltd. | Korea | 5,000 | Credit information | |||||||
Woori Fund Service Co., Ltd. | Korea | 10,000 | Finance | |||||||
Woori Asset Trust Co., Ltd | Korea | 15,300 | Finance | |||||||
Woori Asset Management Corp. | Korea | 20,000 | Finance | |||||||
Woori Private Equity Asset Management Co., Ltd. | Korea | 30,000 | Finance | |||||||
Woori Global Asset Management Co., Ltd. | Korea | 20,000 | Finance |
September 30, 2020 | December 31, 2019 | |||||||||||||||||||
Subsidiaries (*1) | Number of shares | Percentage of ownership (%) (*2) | Financial statements date of use | Number of shares | Percentage of ownership (%) (*2) | Financial statements date of use | ||||||||||||||
Woori Bank | 716,000,000 | 100.0 | September 30, 2020 | 676,000,000 | 100.0 | December 31,2019 | ||||||||||||||
Woori Card Co., Ltd. | 179,266,200 | 100.0 | September 30, 2020 | 179,266,200 | 100.0 | December 31,2019 | ||||||||||||||
Woori Investment Bank Co., Ltd. | 403,404,538 | 59.8 | September 30, 2020 | 403,404,538 | 59.8 | December 31,2019 | ||||||||||||||
Woori FIS Co., Ltd. | 4,900,000 | 100.0 | September 30, 2020 | 4,900,000 | 100.0 | December 31,2019 | ||||||||||||||
Woori Finance Research Institute Co., Ltd. | 600,000 | 100.0 | September 30, 2020 | 600,000 | 100.0 | December 31,2019 | ||||||||||||||
Woori Credit Information Co., Ltd. | 1,008,000 | 100.0 | September 30, 2020 | 1,008,000 | 100.0 | December 31,2019 | ||||||||||||||
Woori Fund Service Co., Ltd. | 2,000,000 | 100.0 | September 30, 2020 | 2,000,000 | 100.0 | December 31,2019 | ||||||||||||||
Woori Asset Trust Co., Ltd | 1,560,000 | 67.2 | September 30, 2020 | 1,560,000 | 67.2 | December 31,2019 | ||||||||||||||
Woori Asset Management Corp. | 2,920,000 | 73.0 | September 30, 2020 | 2,920,000 | 73.0 | December 31,2019 | ||||||||||||||
Woori Private Equity Asset Management Co., Ltd. | 6,000,000 | 100.0 | September 30, 2020 | 6,000,000 | 100.0 | December 31,2019 | ||||||||||||||
Woori Global Asset Management Co., Ltd. | 4,000,000 | 100.0 | September 30, 2020 | 4,000,000 | 100.0 | December 31,2019 |
(*1) | Only subsidiaries invested directly by the Company are included. |
(*2) | The percentage is based on the effective shareholding rate relative to the number of stocks outstanding. |
- 24 -
(2) | Changes in the carrying value of investments in subsidiaries are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Beginning balance | Acquisition | Disposal | Ending balance | |||||||||||||
Woori Bank | 17,921,151 | 1,000,000 | — | 18,921,151 | ||||||||||||
Woori Card Co., Ltd. | 1,118,367 | — | — | 1,118,367 | ||||||||||||
Woori Investment Bank Co., Ltd. | 392,795 | — | — | 392,795 | ||||||||||||
Woori FIS Co., Ltd. | 21,754 | — | — | 21,754 | ||||||||||||
Woori Finance Research Institute Co., Ltd. | 1,677 | — | — | 1,677 | ||||||||||||
Woori Credit Information Co., Ltd. | 16,466 | — | — | 16,466 | ||||||||||||
Woori Fund Service Co., Ltd. | 13,939 | — | — | 13,939 | ||||||||||||
Woori Asset Trust Co., Ltd | 224,198 | — | — | 224,198 | ||||||||||||
Woori Asset Management Corp. | 122,449 | — | — | 122,449 | ||||||||||||
Woori Private Equity Asset Management Co., Ltd. | 7,797 | — | — | 7,797 | ||||||||||||
Woori Global Asset Management Co., Ltd. | 33,000 | — | — | 33,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 19,873,593 | 1,000,000 | — | 20,873,593 | ||||||||||||
|
|
|
|
|
|
|
|
For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||||||
Beginning balance (date of incorporation) | Acquisition | Disposal | Ending balance | |||||||||||||
Woori Bank (*1) | 17,921,151 | — | — | 17,921,151 | ||||||||||||
Woori Card Co., Ltd. (*2) | — | 1,118,367 | — | 1,118,367 | ||||||||||||
Woori Investment Bank Co., Ltd. (*2) | — | 392,795 | — | 392,795 | ||||||||||||
Woori FIS Co., Ltd. (*1) | 21,754 | — | — | 21,754 | ||||||||||||
Woori Finance Research Institute Co., Ltd. (*1) | 1,677 | — | — | 1,677 | ||||||||||||
Woori Credit Information Co., Ltd. (*1) | 16,466 | — | — | 16,466 | ||||||||||||
Woori Fund Service Co., Ltd. (*1) | 13,939 | — | — | 13,939 | ||||||||||||
Woori Asset Management Corp. (*3) | — | 122,449 | — | 122,449 | ||||||||||||
Woori Private Equity Asset Management Co., Ltd. (*1) | 7,797 | — | — | 7,797 | ||||||||||||
ABL Global Asset Management Co., Ltd. (*4) | — | 33,000 | — | 33,000 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 17,982,784 | 1,666,611 | — | 19,649,395 | ||||||||||||
|
|
|
|
|
|
|
|
(*1) | Acquired by the comprehensive stock transfer at the date of incorporation. |
(*2) | Woori card Co., Ltd. And Woori investment Bank Co., Ltd. were transferred from second-tier subsidiaries into subsidiaries in September 2019. |
(*3) | The Company newly acquired a 73% stake in Tongyang Asset Management Corporation and changed the name to Woori Asset Management Corporation in August 2019. |
(*4) | The remaining payment was completed in August 2019 after the request for the change of major shareholder was approved by the Financial Service Commission in July 2019. The subsequent process is in progress to close the deal. |
- 25 -
11. | PREMISES AND EQUIPMENT |
(1) | Details of premises and equipment as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||||||
Building | Properties for business use | Leasehold improvements | Total | |||||||||||||
Premises and equipment(owned) | — | 3,888 | 3,189 | 7,077 | ||||||||||||
Right-of-use asset | 604 | 620 | — | 1,224 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 604 | 4,508 | 3,189 | 8,301 | ||||||||||||
|
|
|
|
|
|
|
|
December 31, 2019 | ||||||||||||||||
Building | Properties for business use | Leasehold improvements | Total | |||||||||||||
Premises and equipment(owned) | — | 3,767 | 1,796 | 5,563 | ||||||||||||
Right-of-use asset | 1,436 | 384 | — | 1,820 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,436 | 4,151 | 1,796 | 7,383 | ||||||||||||
|
|
|
|
|
|
|
|
(2) | Details of premises and equipment (owned) as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||
Properties for business use | Leasehold improvements | Total | ||||||||||
Acquisition cost | 5,407 | 4,034 | 9,441 | |||||||||
Accumulated depreciation | (1,519 | ) | (845 | ) | (2,364 | ) | ||||||
|
|
|
|
|
| |||||||
Net carrying amount | 3,888 | 3,189 | 7,077 | |||||||||
|
|
|
|
|
|
December 31, 2019 | ||||||||||||
Properties for business use | Leasehold improvements | Total | ||||||||||
Acquisition cost | 4,538 | 2,184 | 6,722 | |||||||||
Accumulated depreciation | (771 | ) | (388 | ) | (1,159 | ) | ||||||
|
|
|
|
|
| |||||||
Net carrying amount | 3,767 | 1,796 | 5,563 | |||||||||
|
|
|
|
|
|
(3) | Details of changes in premises and equipment (owned) are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | ||||||||||||
Properties for business use | Leasehold improvements | Total | ||||||||||
Beginning balance | 3,767 | 1,797 | 5,564 | |||||||||
Acquisitions | 869 | 1,849 | 2,718 | |||||||||
Depreciation | (748 | ) | (457 | ) | (1,205 | ) | ||||||
|
|
|
|
|
| |||||||
Ending balance | 3,888 | 3,189 | 7,077 | |||||||||
|
|
|
|
|
|
For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||
Properties for business use | Leasehold improvements | Total | ||||||||||
Beginning balance | — | — | — | |||||||||
Acquisitions | 4,412 | 2,184 | 6,596 | |||||||||
Depreciation | (546 | ) | (278 | ) | (824 | ) | ||||||
|
|
|
|
|
| |||||||
Ending balance | 3,866 | 1,906 | 5,772 | |||||||||
|
|
|
|
|
|
- 26 -
(4) | Details of right-of-use assets as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||
Building | Properties for business use | Total | ||||||||||
Acquisition cost | 3,704 | 1,047 | 4,751 | |||||||||
Accumulated depreciation | (3,100 | ) | (427 | ) | (3,527 | ) | ||||||
|
|
|
|
|
| |||||||
Net carrying amount | 604 | 620 | 1,224 | |||||||||
|
|
|
|
|
|
December 31, 2019 | ||||||||||||
Building | Properties for business use | Total | ||||||||||
Acquisition cost | 2,871 | 568 | 3,439 | |||||||||
Accumulated depreciation | (1,435 | ) | (184 | ) | (1,619 | ) | ||||||
|
|
|
|
|
| |||||||
Net carrying amount | 1,436 | 384 | 1,820 | |||||||||
|
|
|
|
|
|
(5) | Details of changes in right-of-use assets for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019 are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | ||||||||||||
Building | Properties for business use | Total | ||||||||||
Beginning balance | 1,436 | 384 | 1,820 | |||||||||
New contracts | 833 | 479 | 1,312 | |||||||||
Depreciation | (1,665 | ) | (243 | ) | (1,908 | ) | ||||||
|
|
|
|
|
| |||||||
Ending balance | 604 | 620 | 1,224 | |||||||||
|
|
|
|
|
|
For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||
Building | Properties for business use | Total | ||||||||||
Beginning balance | — | — | — | |||||||||
New contracts | 2,871 | 568 | 3,439 | |||||||||
Depreciation | (1,076 | ) | (137 | ) | (1,213 | ) | ||||||
|
|
|
|
|
| |||||||
Ending balance | 1,795 | 431 | 2,226 | |||||||||
|
|
|
|
|
|
12. | INTANGIBLE ASSETS |
(1) | Details of intangible assets are as follows (Unit: Korean Won in millions): |
September 30, 2020 | ||||||||||||||||||||
Software | Development cost | Membership deposit | Construction in progress | Total | ||||||||||||||||
Acquisition cost | 3,049 | 2,116 | 2,371 | 41 | 7,577 | |||||||||||||||
Accumulated amortization | (1,674 | ) | (475 | ) | — | — | (2,149 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net carrying amount | 1,375 | 1,641 | 2,371 | 41 | 5,428 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
December 31, 2019 | ||||||||||||
Software | Development cost | Total | ||||||||||
Acquisition cost | 2,729 | 1,901 | 4,630 | |||||||||
Accumulated amortization | (1,144 | ) | (176 | ) | (1,320 | ) | ||||||
|
|
|
|
|
| |||||||
Net carrying amount | 1,585 | 1,725 | 3,310 | |||||||||
|
|
|
|
|
|
- 27 -
(2) | Details of changes in intangible assets are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | ||||||||||||||||||||
Software | Development cost | Membership deposit | Construction in progress | Total | ||||||||||||||||
Beginning balance | 1,585 | 1,725 | — | — | 3,310 | |||||||||||||||
Acquisitions | 320 | 216 | 2,371 | 41 | 2,948 | |||||||||||||||
Amortization | (530 | ) | (300 | ) | — | — | (830 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Ending balance | 1,375 | 1,641 | 2,371 | 41 | 5,428 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||
Software | Development cost | Total | ||||||||||
Beginning balance | — | — | — | |||||||||
Acquisitions | 2,729 | 1,901 | 4,630 | |||||||||
Amortization | (797 | ) | (81 | ) | (878 | ) | ||||||
|
|
|
|
|
| |||||||
Ending balance | 1,932 | 1,820 | 3,752 | |||||||||
|
|
|
|
|
|
13. | OTHER ASSETS |
Details of other assets are as follows (Unit: Korean Won in millions):
September 30, 2020 | December 31, 2019 | |||||||
Prepaid expenses | 264 | — |
14. | DEBENTURES |
Details of debentures are as follows (Unit: Korean Won in millions):
September 30, 2020 | December 31, 2019 | |||||||||||||||
Interest rate (%) | Amount | Interest rate (%) | Amount | |||||||||||||
Face value of bonds: | ||||||||||||||||
General bonds | 1.23 | 200,000 | — | — | ||||||||||||
Subordinated bonds | 2.13 ~ 2.55 | 950,000 | 2.13 ~ 2.55 | 950,000 | ||||||||||||
|
|
|
| |||||||||||||
Sub-total | 1,150,000 | 950,000 | ||||||||||||||
Deducted item: | ||||||||||||||||
Discounts on bonds | (2,590 | ) | (2,321 | ) | ||||||||||||
|
|
|
| |||||||||||||
Total | 1,147,410 | 947,679 | ||||||||||||||
|
|
|
|
- 28 -
15. | PROVISIONS |
(1) | Details of provisions are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Asset retirement obligation | 718 | 600 |
(2) | Changes in asset retirement obligation are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30,2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Beginning balance | 600 | — | ||||||
Increase | 108 | 588 | ||||||
Amortization | 10 | 9 | ||||||
|
|
|
| |||||
Ending balance | 718 | 597 | ||||||
|
|
|
|
16. | NET DEFINED BENEFIT LIABILITY |
The Company’s pension plan is based on the defined benefit retirement pension plan. Employees and directors with one or more years of service are entitled to receive a payment upon termination of their employment, based on their length of service and rate of salary at the time of termination. The assets of the plans are measured at their fair value at the end of reporting date. The plan liabilities are measured using the projected unit method, which takes account of projected earnings increases, using actuarial assumptions that give the best estimate of the future cash flows that will arise under the plan liabilities.
The Company is exposed to various risks through defined benefit retirement pension plan, and the most significant risks are as follows:
Volatility of asset | The defined benefit obligation was estimated with an interest rate calculated based on blue chip corporate bonds earnings. A deficit may occur if the rate of return of plan assets falls short of the interest rate. | |
Decrease in profitability of blue chip bonds | A decrease in profitability of blue chip bonds will be offset by some increase in the value of debt securities that the employee benefit plan owns but will bring an increase in the defined benefit obligation. | |
Risk of inflation | Defined benefit obligations are related to inflation rate; the higher the inflation rate is, the higher the level of liabilities. Therefore, deficit occurs in the system if an inflation rate increases. |
(1) | Details of net defined benefit liability are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Present value of defined benefit obligation | 23,897 | 14,174 | ||||||
Fair value of plan assets | (14,751 | ) | (10,692 | ) | ||||
|
|
|
| |||||
Net defined benefit liability | 9,146 | 3,482 | ||||||
|
|
|
|
- 29 -
(2) | Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Beginning balance | 14,174 | — | ||||||
Transfer-in / out | 4,656 | 8,877 | ||||||
Recruit / Transfer in | 1,266 | 3,360 | ||||||
Current service cost | 1,509 | 1,119 | ||||||
Interest cost | 288 | 190 | ||||||
Remeasurements | ||||||||
Financial assumption | 425 | 717 | ||||||
Demographic assumptions | — | — | ||||||
Experience adjustment | 1,740 | 312 | ||||||
Retirement benefit paid | (93 | ) | — | |||||
Others | (68 | ) | — | |||||
|
|
|
| |||||
Ending balance | 23,897 | 14,575 | ||||||
|
|
|
|
(3) | Changes in the plan assets are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Beginning balance | 10,692 | — | ||||||
Transfer-in / out | 4,056 | 8,877 | ||||||
Interest income | 219 | 87 | ||||||
Remeasurements | (69 | ) | (22 | ) | ||||
Retirement benefit paid | (147 | ) | — | |||||
|
|
|
| |||||
Ending balance | 14,751 | 8,942 | ||||||
|
|
|
|
(4) | Plan assets wholly consist of fixed deposits as of September 30, 2020 and December 31, 2019. Among plan assets, realized returns on plan assets amount to 150 million won and 65 million won for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019, respectively. |
(5) | The amount recognized in profit or loss and total comprehensive income related to the defined benefit plan for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019 is as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Current service cost | 1,509 | 1,119 | ||||||
Recruit / Transfer in | 1,266 | 3,360 | ||||||
Net interest expense (Income) | 69 | 103 | ||||||
|
|
|
| |||||
Cost recognized in net income | 2,844 | 4,582 | ||||||
|
|
|
| |||||
Remeasurements (*) | 2,234 | 1,050 | ||||||
|
|
|
| |||||
Cost recognized in total comprehensive income | 5,078 | 5,632 | ||||||
|
|
|
|
(*) | The amount is before income tax expense effect. |
- 30 -
17. | OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES |
Other financial liabilities and other liabilities are as follows (Unit: Korean Won in millions):
September 30, 2020 | December 31, 2019 | |||||||
Other financial liabilities: | ||||||||
Accounts payable | 706 | 2,424 | ||||||
Accrued expenses | 7,669 | 6,651 | ||||||
Lease liabilities | 1,230 | 1,568 | ||||||
Other miscellaneous financial liabilities | 202 | 102 | ||||||
|
|
|
| |||||
Sub-total | 9,807 | 10,745 | ||||||
|
|
|
| |||||
Other liabilities: | ||||||||
Other miscellaneous liabilities | 1,170 | 4,142 | ||||||
|
|
|
| |||||
Total | 10,977 | 14,887 | ||||||
|
|
|
|
18. | DERIVATIVES |
Derivative assets and derivative liabilities are as follows (Unit: Korean Won in millions):
September 30, 2020 | December 31, 2019 | |||||||||||||||
Nominal amount | Assets For trading | Nominal amount | Assets For trading | |||||||||||||
Equity Forwards | 117,535 | 9,434 | 117,535 | 9,434 |
Derivatives held for trading are classified into financial assets at FVTPL in the statements of financial position (seeing Note 6).
- 31 -
19. | EQUITY |
(1) | Details of equity as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Capital | 3,611,338 | 3,611,338 | ||||||
Hybrid securities | 1,695,821 | 997,544 | ||||||
Capital surplus | 14,874,084 | 14,874,084 | ||||||
Accumulated other comprehensive income | (1,868 | ) | (631 | ) | ||||
Retained earnings | 702,649 | 623,930 | ||||||
|
|
|
| |||||
Total | 20,882,024 | 20,106,265 | ||||||
|
|
|
|
(2) | The number of authorized shares and others of the Company are as follows: |
September 30, 2020 | December 31, 2019 | |||||||
Shares of common stock authorized | 4,000,000,000 Shares | 4,000,000,000 Shares | ||||||
Par value | 5,000 Won | 5,000 Won | ||||||
Shares of common stock issued | 722,267,683 Shares | 722,267,683 Shares | ||||||
Capital stock | 3,611,338 million won | 3,611,338 million won |
(3) | Hybrid securities |
The bond-type hybrid securities classified as owner’s equity are as follows (Unit: Korean Won in millions):
Issue date | Maturity | Interest rate (%) | September 30, 2020 | December 31, 2019 | ||||||||||||||||
Securities in local currency | 2019-07-18 | — | 3.49 | 500,000 | 500,000 | |||||||||||||||
Securities in local currency | 2019-10-11 | — | 3.32 | 500,000 | 500,000 | |||||||||||||||
Securities in local currency | 2020-02-06 | — | 3.34 | 400,000 | — | |||||||||||||||
Securities in local currency | 2020-06-12 | — | 3.23 | 300,000 | — | |||||||||||||||
Issuance cost |
| (4,179 | ) | (2,456 | ) | |||||||||||||||
|
|
|
| |||||||||||||||||
Total |
| 1,695,821 | 997,544 | |||||||||||||||||
|
|
|
|
The hybrid securities mentioned above do not have maturity date but are redeemable after 5 years from the date of issuance.
(4) | Accumulated other comprehensive income |
Changes in the accumulated other comprehensive income are as follows (Unit: Korean Won in millions):
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Beginning balance | Increase (decrease) | Income tax effect | Ending balance | |||||||||||||
Net gain (loss) on valuation of financial assets at FVTOCI | — | 528 | (145 | ) | 383 | |||||||||||
Remeasurement loss related to defined benefit plan | (631 | ) | (2,234 | ) | 614 | (2,251 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (631 | ) | (1,706 | ) | 469 | (1,868 | ) | |||||||||
|
|
|
|
|
|
|
|
For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||||||
Beginning balance | Increase (decrease) | Income tax effect | Ending balance | |||||||||||||
Remeasurement loss related to defined benefit plan | — | (1,050 | ) | 289 | (761 | ) |
- 32 -
(5) | Regulatory Reserve for Credit Loss |
In accordance with Article 26 ~ 28 of the Financial holding company Supervision Regulations, the Company calculates and discloses the regulatory reserve for credit loss.
1) | Balance of the regulatory reserve for credit loss |
Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean Won in millions):
September 30, 2020 | December 31, 2019 | |||||||
Beginning balance | 692 | — | ||||||
Planned provision (reversal) of regulatory reserve for credit loss | (230 | ) | 692 | |||||
|
|
|
| |||||
Ending balance | 462 | 692 | ||||||
|
|
|
|
2) | Provision of regulatory reserve for credit loss, adjusted net income after the provision of regulatory reserve and others |
Planned reserves provided, adjusted net income after the planned reserves provided and adjusted EPS after the planned reserves provided are as follows (Unit: Korean Won in millions, except for EPS amount):
2020 | 2019 | |||||||||||||||
For the three- month period ended September 30, 2020 | For the nine- month period ended September 30, 2020 | For the three- month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Net income before regulatory reserve | (18,126 | ) | 618,946 | (10,941 | ) | 636,490 | ||||||||||
Provision (reversal) of regulatory reserve for credit loss | 160 | (230 | ) | 2 | 1,012 | |||||||||||
Adjusted net income after the provision of regulatory reserve | (18,286 | ) | 619,176 | (10,943 | ) | 635,478 | ||||||||||
Dividends to hybrid securities | (14,275 | ) | (34,640 | ) | (3,572 | ) | (3,572 | ) | ||||||||
Adjusted net income after regulatory reserve and dividends to hybrid securities | (32,561 | ) | 584,536 | (14,515 | ) | 631,906 | ||||||||||
Adjusted EPS after regulatory reserve and dividends to hybrid securities (Unit: Korean Won) | (45 | ) | 809 | (21 | ) | 924 |
20. | DIVIDENDS |
Dividends per share and the total dividends for the fiscal year ending December 31, 2019 were 700 Won and 505,587 million won, respectively, approved at the regular general shareholders’ meeting held on March 25, 2020.
- 33 -
21. | NET INTEREST INCOME |
(1) | Interest income recognized is as follows (Unit: Korean Won in millions): |
2020 | 2019 | |||||||||||||||
For the three- month period ended September 30, 2020 | For the nine- month period ended September 30, 2020 | For the three- month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Interest on due from banks | 1,292 | 8,978 | 3,467 | 3,968 | ||||||||||||
Other interest income | 7 | 20 | 5 | 13 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,299 | 8,998 | 3,472 | 3,981 | ||||||||||||
|
|
|
|
|
|
|
|
(2) | Details of interest expense recognized are as follows (Unit: Korean Won in millions): |
2020 | 2019 | |||||||||||||||
For the three- month period ended September 30, 2020 | For the nine- month period ended September 30, 2020 | For the three- month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Interest on borrowings | — | — | — | 495 | ||||||||||||
Interest on debentures | 5,707 | 16,714 | 2,339 | 2,677 | ||||||||||||
Other interest expense | 4 | 10 | 3 | 9 | ||||||||||||
Interest on lease liabilities | 7 | 25 | 11 | 35 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 5,718 | 16,749 | 2,353 | 3,216 | ||||||||||||
|
|
|
|
|
|
|
|
22. | NET FEES AND COMMISSIONS INCOME |
(1) | There are no fees and commissions income recognized for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019. |
(2) | Details of fees and commissions expense incurred are as follows (Unit: Korean Won in millions): |
2020 | 2019 | |||||||||||||||
For the three- month period ended September��30, 2020 | For the nine- month period ended September 30, 2020 | For the three- month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Fees and commissions paid | 774 | 5,016 | 801 | 3,786 | ||||||||||||
Others | 1,788 | 5,714 | 1,712 | 6,139 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 2,562 | 10,730 | 2,513 | 9,925 | ||||||||||||
|
|
|
|
|
|
|
|
- 34 -
23. | DIVIDEND INCOME |
Details of dividend income recognized are as follows (Unit: Korean Won in millions):
2020 | 2019 | |||||||||||||||
For the three- month period ended September 30, 2020 | For the nine- month period ended September 30, 2020 | For the three- month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Dividend income recognized from investments in subsidiaries | — | 677,795 | — | 676,000 | ||||||||||||
Dividend income recognized from FVTOVI | 1,290 | 1,290 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 1,290 | 679,085 | — | 676,000 | ||||||||||||
|
|
|
|
|
|
|
|
24. | PROVISION FOR IMPAIRMENT LOSSES DUE TO CREDIT LOSS |
Details of provision for impairment losses due to credit loss recognized are as follows (Unit: Korean Won in millions):
2020 | 2019 | |||||||||||||||
For the three- month period ended September 30, 2020 | For the nine- month period ended September 30, 2020 | For the three- month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Provision for impairment losses due to credit loss on loans and other financial assets at amortized cost | (183 | ) | (174 | ) | — | — |
- 35 -
25. | GENERAL AND ADMINISTRATIVE EXPENSES |
(1) | Details of general and administrative expenses recognized are as follows (Unit: Korean Won in millions): |
2020 | 2019 | |||||||||||||||||||
For the three- month period ended September 30, 2020 | For the nine- month period ended September 30, 2020 | For the three- month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||||||
Employee benefits | Short-term employee benefits | Salaries | 6,937 | 19,528 | 4,782 | 12,063 | ||||||||||||||
Employee fringe benefits | 1,374 | 6,583 | 882 | 4,007 | ||||||||||||||||
Retirement benefit service costs | 640 | 2,844 | 393 | 4,582 | ||||||||||||||||
Share based payments | 243 | 736 | 97 | 627 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Sub-total | 9,194 | 29,691 | 6,154 | 21,279 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Depreciation and amortization | 1,430 | 3,943 | 1,149 | 2,915 | ||||||||||||||||
Other general and administrative expenses | Rent | 298 | 790 | 177 | 511 | |||||||||||||||
Taxes and public dues | 85 | 300 | 65 | 175 | ||||||||||||||||
Service charges | 777 | 2,443 | 945 | 1,929 | ||||||||||||||||
Computer and IT related | 839 | 2,054 | 435 | 1,124 | ||||||||||||||||
Telephone and communication | 68 | 258 | 52 | 152 | ||||||||||||||||
Operating promotion | 379 | 881 | 182 | 433 | ||||||||||||||||
Advertising | 12 | 113 | 13 | 473 | ||||||||||||||||
Printing | 7 | 35 | 15 | 60 | ||||||||||||||||
Traveling | 9 | 43 | 146 | 252 | ||||||||||||||||
Supplies | 37 | 156 | 27 | 82 | ||||||||||||||||
Insurance premium | — | 19 | — | 164 | ||||||||||||||||
Reimbursement | 280 | 729 | 222 | 585 | ||||||||||||||||
Vehicle maintenance | 67 | 154 | 38 | 87 | ||||||||||||||||
Others | 6 | 33 | 4 | 13 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Sub-total | 2,864 | 8,008 | 2,321 | 6,040 | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total | 13,488 | 41,642 | 9,624 | 30,234 | ||||||||||||||||
|
|
|
|
|
|
|
|
- 36 -
(2) | Share-based payment |
Details of performance condition share-based payment granted to executives as of September 30, 2020 and 2019 are as follows.
1) | Performance condition share-based payment |
Subject to | Shares granted for the year 2019 | |||
Type of payment | Cash-settled | |||
Vesting period | January 11, 2019 ~ December 31, 2022 | |||
Date of payment | 2023-01-01 | |||
Fair value (*1) | 7,724 Won | |||
Valuation method | Black-Scholes Model | |||
Expected dividend rate | 4.13% | |||
Expected maturity date | 2.25 years | |||
Number of shares remaining | As of September 30, 2020 | 77,728 shares | ||
As of December 31, 2019 | 77,728 shares | |||
Number of shares granted (*2) | As of September 30, 2020 | 77,728 shares | ||
As of December 31, 2019 | 77,728 shares |
Subject to | Shares granted for the year 2020 | |||
Type of payment | Cash-settled | |||
Vesting period | January 1, 2020 ~ December 31, 2023 | |||
Date of payment | 2024-01-01 | |||
Fair value (*1) | 7,412 Won | |||
Valuation method | Black-Scholes Model | |||
Expected dividend rate | 4.13% | |||
Expected maturity date | 3.25 years | |||
Number of shares remaining | As of September 30, 2020 | 128,755 shares | ||
As of December 31, 2019 | — | |||
Number of shares granted (*2) | As of September 30, 2020 | 128,755 shares | ||
As of December 31, 2019 | — |
(*1) | As the amount of payment varies according to the base price (the arithmetic average of the weighted average stock price of transactions in the past one week, the past one month, and the past two months) at the date of payment, the fair value is calculated and used to measure the liability according to the Black Shawls model based on the base price at the time of each settlement. |
(*2) | The number of payable stocks is granted at the initial contract date and the payment rate is determined based on the achievement of the pre-determined performance targets. Performance is evaluated as long-term performance indication including relative shareholder return, net income, return on equity (ROE), non-performing loan ratio and job performance. |
2) | The Company accounts for performance condition share-based payments according to the cash-settled method and the fair value of the liabilities is reflected in the compensation costs by re-measuring every closing period. As of September 30, 2020 and December 31, 2019 the book value of the liabilities related to the performance condition share-based payments recognized by the Company is 1,555 million won and 819 million won. |
- 37 -
26. | NON-OPERATING INCOME (EXPENSES) |
(1) | Details of non-operating income and expenses recognized are as follows (Unit: Korean Won in millions): |
2020 | 2019 | |||||||||||||||
For the three-month period ended September 30, 2020 | For the nine-month period ended September 30, 2020 | For the three-month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Other non-operating income | — | 181 | — | — | ||||||||||||
Other non-operating expense | (200 | ) | (401 | ) | (155 | ) | (755 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | (200 | ) | (220 | ) | (155 | ) | (755 | ) | ||||||||
|
|
|
|
|
|
|
|
(2) | Details of other non-operating income recognized are as follows (Unit: Korean Won in millions): |
2020 | 2019 | |||||||||||||||
For the three-month period ended September 30, 2020 | For the nine-month period ended September 30, 2020 | For the three-month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Others | — | 181 | — | — |
(3) | Details of other non-operating expenses recognized are as follows (Unit: Korean Won in millions): |
2020 | 2019 | |||||||||||||||
For the three-month period ended September 30, 2020 | For the nine-month period ended September 30, 2020 | For the three-month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Donations | 200 | 401 | 155 | 755 |
- 38 -
27. | INCOME TAX EXPENSE (INCOME) |
Details of income tax expense (income) are as follows (Unit: Korean Won in millions):
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Current tax expense: | ||||||||
Current tax expense with respect to the current period | — | — | ||||||
|
|
|
| |||||
Sub-total | — | — | ||||||
|
|
|
| |||||
Deferred tax expense (income) | ||||||||
Change in deferred tax assets (liabilities) due to temporary differences | (847 | ) | (928 | ) | ||||
Income tax expense directly attributable to equity | 469 | 289 | ||||||
|
|
|
| |||||
Sub-total | (378 | ) | (639 | ) | ||||
|
|
|
| |||||
Income tax expense (income) | (378 | ) | (639 | ) | ||||
|
|
|
|
Income tax expense (income) was recognized based on the estimate of the best weighted average annual effective tax rate expected for the interim period. It is tax income for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation), so the annual effective tax rate was not calculated.
28. | EARNINGS PER SHARE (“EPS”) |
(1) | Basic EPS is calculated by dividing net income attributable to common shareholders by weighted-average number of common shares outstanding (Unit: Korean Won in millions, except for EPS and number of shares): |
2020 | 2019 | |||||||||||||||
For the three-month period ended September 30, 2020 | For the nine-month period ended September 30, 2020 | For the three-month period ended September 30, 2019 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||||||||
Net income attributable to Owners | (18,126 | ) | 618,946 | (10,941 | ) | 636,490 | ||||||||||
Dividends to hybrid securities | (14,275 | ) | (34,640 | ) | (3,572 | ) | (3,572 | ) | ||||||||
Net income attributable to common shareholders | (32,401 | ) | 584,306 | (14,513 | ) | 632,918 | ||||||||||
Weighted average number of common shares outstanding | 722 | 722 | 690 | 684 | ||||||||||||
Basic EPS (Unit: Korean Won) | (45 | ) | 809 | (21 | ) | 926 |
(2) | The weighted average number of common shares outstanding is as follows: (Unit: number of shares, days) |
For the nine-month period ended September 30, 2020 | ||||||||||||||||
Period | Number of shares | Dates | Accumulated number of shares outstanding during period | |||||||||||||
Common shares issued at the beginning of the period | 2020-01-01 ~ 2020-09-30 | 722,267,683 | 274 | 197,901,345,142 | ||||||||||||
Treasury stock | 2020-01-01 ~ 2020-09-30 | (2) | 274 | (548) | ||||||||||||
|
| |||||||||||||||
Sub-total (①) |
| 197,901,344,594 | ||||||||||||||
|
| |||||||||||||||
Weighted average number of common shares outstanding (②=(①/274) |
| 722,267,681 | ||||||||||||||
|
|
- 39 -
For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||||||
Period | Number of shares | Dates | Accumulated number of shares outstanding during period | |||||||||||||
Common shares issued at the beginning date of incorporation of the period | 2019-01-11~2019-09-30 | 680,164,306 | 263 | 178,883,212,478 | ||||||||||||
Stock issuance (Comprehensive stock exchange) | 2019-09-10 ~ 2019-09-30 | 42,103,377 | 21 | 884,170,917 | ||||||||||||
|
| |||||||||||||||
Sub-total (①) |
| 179,767,383,395 | ||||||||||||||
|
| |||||||||||||||
Weighted average number of common shares outstanding (②=(①/263) |
| 683,526,173 | ||||||||||||||
|
|
Diluted EPS is equal to basic EPS because there is no dilution effect for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019.
29. | CONTINGENT LIABILITIES AND COMMITMENTS |
(1) | Litigation case |
As of September 30, 2020 and December 31, 2019, the Company has no litigation case in progress.
(2) | Details of loan commitments with financial institutions are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||||||||||||
Financial institutions | Line of credit | Loan balance | Line of credit | Loan balance | ||||||||||||||
Loans | Standard Chartered Bank Korea Ltd. | 65,000 | — | 65,000 | — | |||||||||||||
Kookmin Bank | 35,000 | — | 35,000 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total | 100,000 | — | 100,000 | — | ||||||||||||||
|
|
|
|
|
|
|
|
(3) | The Company decided to enter into a stock sales agreement with a major shareholder of Woori Asset Trust Co., Ltd (formerly Kukje Asset Trust Co., Ltd) to acquire 44.5% interest (58.6% of voting rights) during July, 2019, and to acquire additional 21.3% interest (28.0% of voting rights) after a certain period. As a result, the Company acquired the interest of the first sales agreement in December 2019 and is planning to acquire the interest of the second sales agreement after a certain period. |
In regards to this acquisition, the Company recognized 9,434 million won as derivative assets as of September 30, 2020 and December 31, 2019 (seeing Note 18).
- 40 -
30. | RELATED PARTY TRANSACTIONS |
Related parties of the Company as of September 30, 2020 and December 31, 2019, and assets and liabilities recognized, guarantees and commitments, major transactions with related parties and compensation to key management for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019 are as follows:
(1) | Assets and liabilities from transactions with related parties are as follows (Unit: Korean Won in millions): |
Related party | Title of account | September 30, 2020 | December 31, 2019 | |||||||
Subsidiaries | ||||||||||
Woori Bank | Cash and cash equivalents | 97,695 | 43,670 | |||||||
Other financial assets | 970,350 | 1,229,181 | ||||||||
Allowance for credit losses | (437 | ) | (263 | ) | ||||||
Other financial liabilities | 578 | 601 | ||||||||
Woori Card Co., Ltd. | Other financial assets | 20,926 | 37,754 | |||||||
Other financial liabilities | 266 | 267 | ||||||||
Woori FIS Co., Ltd. | Other financial assets | 1,671 | 1,386 | |||||||
Other financial liabilities | 242 | 190 | ||||||||
Woori Finance Research Institute Co., Ltd. | Other financial assets | 146 | 21 | |||||||
Other financial liabilities | — | 1,320 | ||||||||
Woori Credit Information Co., Ltd. | Other financial assets | 662 | 568 | |||||||
Woori Fund Service | Other financial assets | 460 | 556 | |||||||
Associates of subsidiaries | ||||||||||
W Service Networks Co., Ltd. | Other financial liabilities | 125 | 64 |
- 41 -
(2) | Gain or loss from transactions with related parties are as follows (Unit: Korean Won in millions): |
Related party | Title of account | For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Subsidiaries (*1) | ||||||||||
Woori Bank | Interest income | 8,998 | 3,981 | |||||||
Dividend income | 676,000 | 676,000 | ||||||||
Interest expenses (*2) | 25 | 37 | ||||||||
Fees and commissions expense | 11 | 2 | ||||||||
Provision of impairment loss due to credit loss | 174 | — | ||||||||
General and administrative expenses (*2) | 2,420 | 1,574 | ||||||||
Woori Card Co., Ltd. | Dividend income | 1,290 | — | |||||||
Woori FIS Co., Ltd. | General and administrative expenses | 1,867 | 872 | |||||||
Woori Finance Research Institute Co., Ltd. | Fees and commissions expenses | 4,725 | 4,200 | |||||||
Woori Credit Information Co., Ltd. | Dividend income | 494 | — | |||||||
Woori Fund Service | Dividend income | 521 | — | |||||||
Woori Asset Trust Co., Ltd | Dividend income | 780 | — | |||||||
Associates of subsidiaries | ||||||||||
W Service Networks Co., Ltd. | General and administrative expenses | 984 | 577 |
(*1) | The Company issued debentures of 200,000 million won during the period, of which 40,000 million won was underwritten by Woori Investment Bank and paid 40 million won as acquisition fee which is included in the discount on debentures issued. |
(*2) | The depreciation of right-of-use assets and interest expense of lease liabilities arising from lease transactions during the current term are included. |
(3) | The details of the right-of-use assets and lease liabilities due to lease transactions with related parties as of September 30, 2020 and December 31, 2019 are as follows (Unit: Korea Won in millions): |
Related parties | Title of account | September 30, 2020 | December 31, 2019 | |||||||||
Subsidiaries | Woori Bank | Right-of-use assets | 604 | 1,436 | ||||||||
Lease liabilities (*) | 578 | 1,164 |
(*) | Cash outflows of lease liabilities redemption for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019 are 1,319 million won, 829 million won, respectively. |
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(4) | The details of loan and borrowing transactions with related parties for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019 are as follows (Unit: Korea Won in millions): |
Related parties (*1) | Title of account | For the nine-month period ended September 30, 2020 | ||||||||||||||||||
Beginning balance | Increase | Decrease | Ending balance | |||||||||||||||||
Subsidiaries | Woori Bank | Due from banks (*2) | 1,130,000 | 3,330,000 | 3,560,000 | 900,000 |
(*1) | Woori Investment Bank acquired 40,000 million won out of 200,000 million won in non-guaranteed bonds issued during the nine-month period ended September 30, 2020 and sold the entire amount to the market on the date of issuance. |
(*2) | Excludes due from banks without withdrawal limitations. |
Related parties | Title of account | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | ||||||||||||||||||
Beginning balance | Increase | Decrease | Ending balance | |||||||||||||||||
Subsidiaries | Woori Bank | Due from banks (*) | — | 1,800,000 | 1,200,000 | 600,000 |
(*) | Excludes due from banks without withdrawal limitations. |
(5) | The details of equity-related transactions with related parties for the nine-month period ended September 30, 2020 are as follows (Unit: Korean Won in million) |
Related parties | Contribution | Acquisition of hybrid securities | ||||||||
Subsidiaries | Woori Bank | 1,000,000 | — | |||||||
Woori Card Co., Ltd. | — | 150,000 |
(6) | There are no guarantees provided to the related parties. The unused commitments provided from the related parties are as follows (Unit: Korean Won in millions): |
Related parties | September 30, 2020 | December 31, 2019 | Warranty | |||||||||
Subsidiaries | Woori Card Co., Ltd. | 202 | 495 | Unused loan commitment |
(7) | Compensation for key management is as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Short-term employee salaries | 4,308 | 2,808 | ||||||
Retirement benefit service costs | 170 | 392 | ||||||
Share-based compensation | 576 | 405 | ||||||
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| |||||
Total | 5,054 | 3,605 | ||||||
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Key management includes registered executives and non-registered executives. The Company has not recognized any outstanding assets, liabilities, allowance and related impairment loss due to credit losses from transaction with key management as of September 30, 2020 and December 31, 2019.
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31. | LEASES |
(1) | The future lease payments under the lease contracts are as follows (Unit: Korean Won in millions): |
September 30, 2020 | December 31, 2019 | |||||||
Lease payments: | ||||||||
Within one year | 952 | 1,341 | ||||||
After one year but within five years | 291 | 249 | ||||||
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| |||||
Total | 1,243 | 1,590 | ||||||
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(2) | Total cash outflows from lease are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Cash outflows from lease | 1,656 | 1,023 |
(3) | Details of lease payments that are not included in the measurement of lease liabilities due to the fact that they are leases for which the underlying asset is of low value are as follows (Unit: Korean Won in millions): |
For the nine-month period ended September 30, 2020 | For the period from January 11, 2019 (date of incorporation) to September 30, 2019 | |||||||
Lease payments for which the underlying asset is of low value | 95 | 70 |
There are no lease payments not included in the lease liabilities measurement, resulting from short-term leases for the nine-month period ended September 30, 2020 and for the period from January 11, 2019 (date of incorporation) to September 30, 2019.
(4) | On December 16, 2019 the IFRS Interpretation Committee (IC) announced its interpretation on lease term and useful life of leasehold improvements. The IC discussed how to determine the lease term of a cancellable lease or a renewable lease. The Committee also observed that in determining the enforceable period of lease an entity should consider broader economic penalty. The Company plans to reflect its effect subsequent to the analysis of the change in accounting policy regarding lease term. |
32. | EVENTS AFTER THE REPORTING PERIOD |
(1) | In October 2020, the Company concluded a contract to acquire a 74.04% stake (42,605,000 common stocks) in Aju Capital Co., Ltd., and the completion date of the transaction is not yet decided as subsequent procedures for closing the transaction (approval of inclusion by the financial authorities, etc.) is still in progress. |
(2) | Woori Investment Bank Co., Ltd., a subsidiary of the Company, decided to raise 100 billion won in shareholder allocation at the board meeting on August 28, 2020 and completed the payment of the shares on November 5, 2020, and the Company was allocated 109,757,854 shares in relation to the paid-in capital increase. |
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