Woori Financial Group Inc.
Annual Report 2014

Plain-text annual report

W o o r i B a n k 2 0 1 4 a n n u a l r e p o r t S t r e n g t h i n o u r v a l u e S Strength in our valueS Woori Bank 2014 annual report 24 365 ContentS 01 Woori Story Message from the CEO Company Structure Financial Highlights 33 43 Board Of Directors & Management Corporate Governance News Highlights Customer Story Woori Bank’s Awards 2014 BECoMiNG tHE WorLD BESt to LEAD Global Business International Trade Business Financial Market Business ProViDiNG oPPortUNitiES to GroW Smart Banking Corporate Banking SME Banking Institutional Banking Investment Banking 57 69 79 89 012 016 017 018 020 022 024 032 036 038 040 046 048 050 052 055 ENHANCiNG oPENNESS to SErVE Real Estate Finance Pension & Trust Business Wealth Management (WM) Consumer Banking iMProViNG rELiABiLity to SECUrE Risk Management Ethical Management Consumer Protection BUiLDiNG iNtEGrity to SHArE Social Contribution Activities Woori Smile Microcredit Employee Satisfaction FiNANCiAL rEViEW Management’s Discussion and Analysis Independent Auditors’ Report Organization Chart Global Network 060 062 064 066 072 075 077 082 084 086 091 099 202 204 Strength in our valueS Being the longest running Korean bank for Our customers are provided with the most over 116 years, Woori Bank went through convenient and safest financial services; numerous global or domestic difficulties we take the lead in developing Korea’s and challenges, and thus has shared every wealth and economy, while actively moment with our customers for the past supporting citizens and enterprises. 116 years. In order to respond to the changes in the Because our 20 million customers have financial environment, Woori Bank will stand always supported us, Woori Bank has been firm as a ‘strong bank’ and will always be the leading bank in the Korean banking there for our customers, contributing to the industry. continuous development of customer wealth and the Korean economy. World best We have been expanding our global business and now operate in more than 18 countries and offer services in more than 184 networks worldwide. opportunity We provide opportunities for various companies to compete more successfully in the global economy by supporting initiatives to help them acquire the necessary knowledge and skills. openness We always try to provide transparency for all of our customers and be there for them. We also help customers to manage their finances with great care by being accessible 24 hours a day, 365 days a year. reliability We focus on identifying and creating products and services to help households build their wealth, improve their credit, and increase their assets, for financial stability. integrity Being a good corporate citizen and operating with integrity is the key in maintaining our business for over 100 years. By fulfilling our social responsibilities, we help in developing economies and building communities nationwide. 012 MeSSage froM the Ceo Woori Bank Annual Report 2014013 I would like to express my sincere appreciation to all of our customers for their continued support and commitment to Woori Bank. In 2014, despite changes in the financial sector and stronger inter-bank competition, Woori Bank continued to progress towards our goal of privatization. In the first half of the year, we successfully sold subsidiaries such as two Regional Banks(Kwangju Bank and Kyongnam Bank) and six Non-Banks(Woori Investment & Securities, Woori Aviva Life Insurance, Woori FG Savings Bank, Woori Asset Management, Woori Financial, Woori F&I). In the second half of the year, we enhanced efficiency by merging Woori Finance Holdings(WFH) with and into Woori Bank. We have thereby centered in on the longest running banking business (the 1st bank to be established in Korea and running for more 116 years) under the name 'Woori (meaning 'our') Bank'. As the management goal for 2015 is ‘enhancing Woori Bank’s corporate value’ we will successfully implement the next phase of the privatization process by receiving recognition for our strong competitive stature in the financial market. We will also return our gratitude to our customers, shareholders, and the nation by providing exceptional customer services. In 2014, Woori Bank’s total assets continued to see a high level of growth, totaling KRW 270 trillion – an increase of approximately KRW 15 trillion when excluding assets(or liabilities) from the subsidiaries that were reclassified into disposal group held for sale or for distribution to owners as of December 31, 2013. As a result of strengthening our personal relationships with each and every one of our 20 million customers, we were able to achieve an increase of more than 1 million new customers. This is the biggest increase amongst all Korean commercial banks. We also achieved a remarkable milestone last year, having served as the treasury bank for the Seoul Metropolitan Government for more than 100 years, consecutively. Moreover, through a competitive bidding process we were selected as the bank operators at Gimpo International Airport and Incheon International Airport, thereby reaffirming customer trust and commitment to Woori Bank in Korea. As for the global competitiveness, Woori Bank was the first Korean bank to acquire a local bank in Indonesia – Saudara Bank. As of the end of 2014, Woori Bank’s 184 overseas networks in 18 countries stand as the largest overseas network among Korean commercial banks. Woori Bank, as the leading international bank among Korean banks, will continue to strengthen our global presence and become one of ‘Asia’s Top 10, Global Top 50’ banks. However, the continuum of the low interest rate environment and low growth in the global economy inevitably caused the Net Interest Margin (NIM) to decline continuously. This resulted in insufficient maximization of earnings compared to our quantitative growth. On the other hand, soundness indicators, such as NPL ratio and delinquency rates, were improved significantly and we will continue to improve our asset quality throughout this year to a similar level as our competitors. Strength in Our ValueS014 We will not only strengthen our competitiveness by preparing for a prolonged low interest-rate environment in 2015, but also plan ahead for the volatility of exchange rates and oil prices caused by economic or political uncertainties of major countries. Furthermore, with the government encouraging lenders to prepare for a paradigm shift in the FinTech(finance technology) sector, it is prime time for us to converge with information technology and provide fast, easy and safe Fintech-oriented banking services by utilizing mobile payment, wire transfers, personal asset management and cloud funding, and etc. We will prepare ourselves and step ahead of our competitors in order to lead the financial market in 2015. First, we will make every effort to act as the main artery of the financial sector, ensuring that only clean blood circulates throughout all corners of the Korean economy. In order to support financing of SMEs and help them to achieve sustainable growth, we will provide accurate evaluations of technology financing. We will thoroughly examine the potential outlook of these technology-oriented companies instead of conducting limited loan reviews by examining financial statements only. We will take the lead in technology financing and relationship-based banking that invests in the future competitiveness of companies. We will also lead the way in stabilizing the livelihood of citizens and will support them during hard times by appointing dedicated members of staff to be in charge of small-loan finance, at all branches. Next, we will cultivate innovative markets for FinTech and Internet Banking. At the end of 2014, Woori Bank was the 1st Korean commercial bank to establish an independent FinTech Business Department. The year 2015 being the first year of the ‘smart digital bank’, we will make every effort to become an innovative bank that promptly meets the diverse needs of financial consumers in the convergence between different businesses. We will also become a leading financial institution that rapidly responds to changes in the financial environment. Lastly, with the mindset of always being there for our customers 24 hours a day, 365 days a year, and with the determination made by all of our employees to strengthen our innovativeness and capabilities, Woori Bank will implement ‘24·365 Innovation Project’ and thereby offer top-notch innovative products and services to our customers. We will become ‘a strong bank’ by achieving an eye-catching performance that will re-emphasize our significance as the 1st to be established and the longest bank running in Korea. Through these efforts, we will enhance the corporate value of Woori Bank and successfully implement the privatization process. Building upon a 116-year history, Woori Bank will always remain committed to serving our customers and shareholders. All of our employees will work together to place our customers’ and shareholders’ happiness or satisfaction as our top priority. I wish you good health and happiness in the Year of the Sheep, 2015. Thank you. Lee, Kwang Goo President and CEO of Woori Bank Woori Bank Annual Report 2014015 Woori Bank will implement ‘24·365 Innovation Project’ and offer top-notch innovative products and services to our customers. We will become ‘a strong bank’ by achieving an eye-catching performance that will re-emphasize our significance as the 1st to be established and the longest bank running in Korea. Strength in Our ValueS016 CoMpany StruCture PriVAtizAtioN oF Woori BANK iN ProGrESS As of 26th Jun. 2013, spin-off and sale processes of the subsidiaries of Woori Finance Holdings (WFH) took place in 2014, according to Woori Finance Holding’s Privatization Plan, approved by the Public Fund Oversight Committee (the “PFOC”). The spin-off of two Regional banks (Kwangju Bank and Kyongnam Bank) were completed on 1st May 2014, while the sale of six Non-Banks (Woori Invest- ment & Securities, Woori Aviva Life Insurance, Woori FG Savings Bank, Woori Asset Management, Woori Financial and Woori F&I) were completed in consecutive order between March and June of 2014. At the final stage of Woori Bank’s privatization plan, as per PFOC’s announcement made on 23rd Jun. 2014 to merge WFH with Woori Bank, WFH merged with and into Woori Bank on 1st Nov. 2014. Woori Bank was then newly listed on 19th Nov. 2014. On 28th Nov. 2014, Korea Deposit Insurance Corporation (KDIC) executed the bid on its 56.97% ownership of Woori Bank by dividing the bid into two forms: the management control of shares (30%) and the minority shares (26.97%). Successful bids were only carried out regarding the sale of minority shares, and as a result, the KDIC’s 56.97% ownership of shares decreased from 56.97% to 51.04%. Meanwhile, further discussion about Woori Bank’s Privatization Plan will be finalized and announced later on by the PFOC. PrESENt StAtUS oF Woori BANK’S SUBSiDiAriES AFtEr MErGiNG WitH WFH Woori Bank Domestic Woori Card Woori Investment Bank Woori FIS Woori Finance Research Institute Woori Credit Information Woori Fund Service 100% 58.15% 100% 100% 100% 100% Woori PE 100% International Woori America Bank Woori Bank (China) Ltd PT Bank Woori Saudara Indonesia 1906 Tbk Woori Global Market Asia Limited Zao Woori Bank Woori Bank Brasil Woori Finance Cambodia Plc 100% 100% 74.02% 100% 100% 100% 100% Major ShareholderS of Woori Bank (As of Dec. 2014) Name of shareholder Number of shares owned Percentage of ownership Korea Deposit Insurance Corporation National Pension Service Employee Stock Ownership Association* Capital World Growth and Income Fund Korea Investment Management Co., Ltd. (private equity fund) * Employee Stock Ownership Association is in the form of union member account. 345,142,556 48,263,870 27,020,600 12,625,314 10,622,314 51.04% 7.14% 4.00% 1.87% 1.57% Woori Bank Annual Report 2014017 finanCial highlightS KrW LoANS (Unit: KRW trillion) Total Assets KRW Loans DEPoSitS (Unit: KRW trillion) Total Liabilities Deposits CrEDit CoSt (Unit: KRW billion) 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 270.2 167.3 340.7 156 317.8 175.3 252.1 188.5 2,277 1,097 7.2% 7.5% 51.8% NEt iNCoME (Unit: KRW billion) roA / roE (Unit: %) BiS CAPitAL (Unit: %) * Excluding one-off factors related to the sale and the spin off of subsidiaries Tier 1 BIS * Basel III basis 1) Excluding risk weighted assets of 5 subsidiaries 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 1,214 ROA 0.14 0.21 -538 ROE 2.56 3.55 325.6% 15.52 15.71) 14.25 11.81) 12.68 10.69 * Woori Bank consolidated basis (K-IFRS) ** Due to the merger between Woori Finance Holdings and Woori Bank(Nov.1, 2014), the consolidated F/S of Woori Bank have been stated based on the consolidated F/S of Woori Finance Holdings. Strength in Our ValueS018 Board of direCtorS & ManageMent Chung, Soo Kyung Lee, Kwang Goo Lee, Dong Gun Woori Bank Annual Report 2014019 StandinG directorS Lee, Kwang Goo 49th President & Chief Executive Officer Lee, Dong Gun Deputy President / Director • Executive Vice President, Consumer Banking Business Unit, Woori Bank • Executive Vice President, Finance & Management Planning Unit, Woori Bank • Head, Gwangjin-Seongdong Sales Center, Woori Bank • General Manager, Consumer Banking Products & Marketing Dept., Woori Bank • Chief Executive, Woori Global Markets Asia Ltd. (Hong Kong) • General Manager, Card Strategy Dept., Woori Bank • General Manager, Consumer Banking Marketing Dept., Woori Bank • B.A. in Business Administration, Sogang University • Executive Vice President, Credit Support Unit, Woori Bank • Executive Vice President, Operation & Support Unit, Woori Bank • Managing Director (CIO), Channel Support Division, Woori Bank • Head, Gangnamjungang Corporate Banking Center, Woori Bank • General Manager, International Trade Business Division, Woori Bank • M.A. in Financial Economics, Graduate School of Economics, Yonsei University • B.A. in Business Administration, Yeungnam University Chung, Soo Kyung Standing Audit Committee Member / Director • Local Government Dispute Mediation Committee Member, Ministry of Security and Public Administration • Financial disputes settlement member, Financial Supervisory Service • Financial consumer panel member, Financial Supervisory Service • Deputy Executive Director, Korean Bar Association • Registered as Lawyer/Attorney • Registered as Certified Public Tax Account and Patent Attorney • B.A. in English Language and Literature, Sungkyunkwan University outSide directorS Hong, Il Hwa • Current) Standing Advisor, Women’s Newspaper Women & People • Outside Director, Korea Development Bank(KDB) • President, Korea-Romania Friendship Society • M.A. in Public Policy, Kookmin University Graduate School of Public Administration • B.A. in Economics, Kookmin University Chun, He Suk • Current) Professor of Economics, Cheongju University • Vice President, Merrill Lynch, New York, Investment Advisory Company • Acting General Manager, New York Branch, Kookmin Bank • M.A. in Business Administration/Ph.D. in Economics, George Washington Univ. • B.A. in Biology, Yonsei University Oh, Sang Keun • Current) Professor of Economics, Dong-A University • Executive Director, Korean Economic Association • Ph.D. in Economics, University of Wisconsin- Madison • M.A. in Economics, Seoul National University • B.A. in Economics, Sungkyunkwan University Choi, Kang Shik • Current) Professor of Economics, School of Business, and Dean, School of Undergraduate Studies, Yonsei University • Executive Director, Korean Economic Association • Ph.D. in Economics, Yale University • M.A. in Economics, Yonsei University • B.A. in Economics, Yonsei University Jung, Han Gi • Current) Visiting Professor of Liberal Arts, Hoseo University • CEO/President, Eugene Asset Management • Corporate Business Head (Managing Director), NH Investment & Securities • Entered the Bank of Seoul and Trust Company / General Manager, Dong Hwa Bank • M.A. in Business Administration, Graduate School of Business, Sogang University • B.A. in Political Science, Sogang University Koh, Sung Soo • Current) President and Professor of Konkuk University Graduate School of Real Estate • Research Fellow, Korea Institute of Finance • M.A./Ph.D. in Economics, Cornell Graduate School • M.A. in Business Administration, Columbia University • B.A. in Business Administration, Yonsei University non-StandinG director executive vice preSident Kim, Joon Ki • Current) Dept. Head of Human Resources and Administration, Korea Deposit Insurance Corporation • Dept Head of Savings Bank Normalization, Korea Deposit Insurance Corporation • Dept. Head of Risk Management II, Korea Deposit Insurance Corporation • B.A. in Business Administration, Korea University Kim, Seung Gyu Management Support Unit Jeong, Won Jai Corporate Banking Business Unit Kim, Ok Joung Risk Management Unit Sohn, Tae Seung Global Business Unit Kwon, Ki Hyung Institutional Banking Business Unit Nam, Ki Myung Consumer Banking Business Unit Chae,Woo Seok Small & Medium Corporate Banking Business Unit Park, Ki Suk Finance & Management Planning Unit Yoo, Jum Seung Human Resources Unit Lee, Dong Bin Credit Support Unit Kim, Jong Won Real Estate Finance Business Unit Strength in Our ValueS020 Corporate governanCe At the end of March 2015, Woori Bank’s Board of Directors consisted of 10 executive directors: three standing directors, bank management and maximized shareholder value, by operat- ing the Board based on free discussions with experts in various one non-standing director and six outside directors, who were fields, including economics and law. appointed to increase the relevant expertise and independence At the quarterly meeting in 2014, there was consensus among of the Board. The six outside directors and one non-standing the board in regards to the quarterly management records and director were selected based on their experience in the fields they made regular inspections of the group’s management. The of finance, management, law, accounting and public relations; major agenda of discussions included: reports on the submission many are also well-known public figures. They support, as well as monitor, Woori Bank’s strategic decision-making and overall of plans for the implementation of the Memorandum of Under- standing (MOU) signed with the Financial Supervisory Service business affairs on a regular basis. (FSS); the results and details of the MOU implementation with Korea Deposit Insurance Corporation (KDIC); plans to issue revieW of 2014 The Board held 26 meetings in 2014 to discuss a total of 66 foreign currency-denominated bonds; comprehensive briefings regarding major loans; briefings on NPLs; reviews of the orders pending issues and 55 briefings for decision-making and delib- implemented by the Board of Directors, as well as discussions eration, and the overall attendance rate of outside directors was concerning the outcome of reviews and a rundown of the activi- 91%. Directors from various fields collected information through in- ternal and external activities, and then offered real-world advice ties of various committees under the Board of Directors. At the December meeting, the Board also held in-depth discussions about major issues facing Woori Bank, amid continuing market by utilizing their expertise to contribute significantly to improving changes, such as the confirmation of the Bank’s 2015 draft man- management. This photo shows that they promoted effective agement plan. Woori Bank Annual Report 2014021 Type of Meeting No. of Agenda Issues No. of Briefings Major Issues Shareholders’ Meeting, BOD and Corporate Governance, etc. 29 12 Accounting/ Financial Management Portfolio & Risk Management/ Investment/Audit & Inspection/ Gov. Regulation HR/Organizational Management Others Total 9 1 3 24 66 8 14 7 14 55 Holding regular shareholder meetings, operating the Board of Directors/ Board of Directors’ Management Committee, discussing corporate governance issues, estab- lishing and implementing management plans and strategies (launching and realigning divisions) Approving and modifying the settlement of financial statements, reporting and plan- ning financial records, briefing on results and actions for reviewing the MOU, planning for issuing bonds (including foreign currency bonds) and managing credit limits Comprehensive briefing on major loans, investing in private equity funds, selling off NPLs, briefing on the status of NPLs, appraising the commitments of investment companies to invest, handle audit and internal control issues and manage and sup- port special contributions of guarantee institutions for SMEs Carrying out performance evaluations/ compensation, appointing dismissing employ- ees excluding the BOD and addressing issues related to labor-management relations coMMitteeS under the Board of directorS In order to ensure the efficient operation of the Board of Direc- audit plans, makes outcome evaluations, implements follow- up measures and provides improvement plans to evaluate and tors, Woori Bank has established the Board of Governance Com- enhance the appropriateness of the internal control system and mittee, the Board Risk Management Committee, the Board Audit management performance measures. Committee, the Board Compensation Committee and the Board Audit Committee Member Recommendation Committee. Board of Governance Committee The Board of Governance Committee actively supports the ac- tivities of the Board of Directors by studying and reviewing the overall function and operation of the Board, as well as establish- ing and reviewing the succession and training plans of the man- agement team including directors. In addition to this, the Com- mittee acts as the Outside Director Candidate Recommendation Committee, as stipulated in Article 22-3 of the Bank Act. Board Risk Management Committee The Board Risk Management Committee makes decisions about risk-related policies and strategies in response to changes in the financial environment. The Committee meets at least once every quarter, or on an ad hoc basis to deliberate on risk manage- ment strategies and policies, risk tolerance levels and exposures, thereby discerning, measuring and monitoring the overall risks arising from the Bank’s management, or various transactions in a timely manner. Board Audit Committee The Board Audit Committee establishes and executes internal Board Compensation Committee The Board Compensation Committee monitors the design and operation of the Bank’s performance-based compensation sys- tems and is in charge of independently establishing compensa- tion policies. Board Audit Committee Member Recommendation Committee The Board Audit Committee Member Recommendation Commit- tee recommends candidates for the Board Audit Committee. planS for 2015 In 2015, Woori Bank will make significant improvements to its management by discussing major agenda items at the Board meetings. At the end of March 2015, the Board of Directors had already met six times. After April, the quarterly Board meetings will continue to focus on agenda items such as the analysis of management performances and the 2016 draft management plan, with ad hoc meetings also being held whenever needed to deal with agenda items related to various matters, such as man- agement goals, organization and financing. In 2015, Woori Bank will act as a reliable partner bank that excels and grows through transparent and efficient management innovation. Strength in Our ValueS022 neWS highlightS 1. Lee, Kwang Goo Appointed as the President & CEo of Woori Bank On December 30, 2014, the inauguration ceremony for President & CEO of Woori Bank, Lee, Kwang Goo, was held in the presence of about 600 employees at Woori Bank’s head office at Jung-gu, Seoul. During the ceremony, he said, “We will continue to build on our tradi- tion and history as Korea’s longest operating reliable bank and do our utmost for successful privatization, by becoming a bank that greatly contributes to our customers and the national economy. To achieve this, we will increase our support to SMEs and take the lead in supporting small loan finance to stabilize household debts, acting entering into emerging markets. By 2016, the proportion of overseas sales revenue will be increased to 10% from t h e c u r r e n t 6 % , t o achieve the goal of be- coming one of ‘Asia’s To p 10 B a n k s’ a n d r a n k i n g a m o n g t h e ‘Global Top 50 Banks’ as a financial institution that revitalizes the economy.” To this end, he by 2016. announced three management goals of completing privatization suc- cessfully, establishing an advanced governance structure and leading innovation in the financial industry. He also promised to accomplish privatization and become the number one bank by implementing the ‘ 24 H o u r/ 3 6 5 D a y 3. reselected as the treasury Bank for Seoul Metropolitan City Woori Bank was reselected as the treasury bank for the Seoul Met- B a n k Im p rove m e nt ropolitan City for a period of four years from 1st January 2015 to 31st Project’, as well as December 2018. Since the designated period for Woori Bank as ensuring stable risk the current treasury bank for Seoul Metropolitan City ended on 31st m a n a g e m e n t a n d December 2014, four banks in totalincluding: Woori Bank, Kookmin i n c r e a s i n g o p e r a t- Bank, Shinhan Bank and Hana Bank, participated in the public bid- ing revenue through ding that began in January 2014. After forming a Deliberation Com- thorough customer mittee to Designate a City Treasury Bank, Woori Bank was chosen as management. the next treasury bank for the Seoul Metropolitan City, thereby signing 2. reaffirming its Status as the #1 Korean Bank by Diversifying overseas Expansion The year 2014 was dedicated to the first year of the implementa- tion of the overseas expansion strategy for Woori Bank, as a new breakthrough to overcome sluggish growth and lower profits in the domestic market. During the year, Woori Bank reinforced its status as the number one Korean bank through international diversification, being the first Korean bank to open a branch in Dubai and an office in Vladivostok, Russia. Also, overseas network expansion will continue through M&As, such as acquiring a 33% stake in Indonesia’s Saudara Bank (Jan 28th) and acquiring a 100% stake in Cambodia’s Malis (July 29th), while also actively expanding the existing network, such as an overseas sub-branch in Indonesia (Feb 14th), the Tianjin Dongmalu sub-branch in China (June 26th) and the Irvine branch in the U.S. (Oct 6th). In 2015, Woori Bank’s overseas expansion will continue focusing on the merger with Saudara Bank, expanding local networks, es- tablishing additional branches in India and reviewing the feasibility of an agreement to handle treasury bank issues on 24th April, 2014. In order to ensure a fair and transparent review, the Deliberation Com- mittee consisted of 12 persons, including financial and IT experts, professors and CPAs. They reviewed 18 items in five areas, including “management capability for treasury bank issues”, “convenience of use for citizens” and “contribution to local communities and coopera- tive projects with the Seoul Metropolitan City”, where Woori Bank achieved the highest score. By being reselected as the treasury bank, Woori Bank will be responsible for managing the Seoul Metropolitan City’s budget of KRW 26 trillion for four years starting from 2015, and act continuously as the treasury bank for Seoul Metropolitan City, as it has for 100 years, since 1915. Woori Bank Annual Report 2014023 4. Launched Korea’s First Product Package for Sharing, ‘Woori Hope Sharing Package’ In order to promote the spirit of sharing through small donations, Woori Bank launched ‘Woori Hope Sharing Package’ consisting of a bankbook, installment savings plan and a credit card. As a financial product package exclusively for sharing, the ‘Woori Hope Sharing Package’ was launched as part of the ‘Improvement Measures for Promoting the Spirit of Sharing’, chosen as the government’s first pri- ority task at the National Policy Coordination Meeting held in March by the Prime Minister, with Woori Bank independently launching the product through a business agreement with the Ministry of Health and Welfare. All of the interest and points donated by subscribing for various products, will be delivered to the socially vulnerable (who do not receive government welfare benefits) through the Korea National ball team at the 2014 Incheon Asian Games, where our main play- e r s, Im You ng-H e e, Park Hye-Jin and Yang Ji- H e e, c o ntr ib u te d to them winning the team’s first gold medal in 20 years. The gold medal redeemed the Korean national basketball team’s honor from China, while also rais- ing the honor of Hansae Basketball Team. Meanwhile, the team won eleven consecutive games after the 2014-2015 Women’s Professional Basketball league’s opening game recently to speed towards a third Council on Social Welfare, a donation organization affiliated to the straight win, including setting a new record for consecutive wins. Ministry of Health and Welfare by law. The customers who partici- pated in donations can get tax deductions automatically during the year-end tax adjustment. Starting with Korea’s first product for public i n te r e s t to p ro m ote the spirit of sharing, 6. Woori Bank’s Successful Merger with Woori Finance Holdings On 3rd November 2014, Woori Bank started operations after being in- ‘Woori Hope Sharing tegrated with Woori Finance Holdings (WFH), which was possible be- Package’, Woori Bank cause of successfully carrying out WFH’s privatization, such as selling will take the lead in off the regional bank unit and the brokerage unit. As a result of WFH spreading the spirit of merging with Woori Bank on 1st November, WFH, which was estab- sharing in our society lished as Korea’s first financial holding company in 2001 faded into by launching a variety history after 14 years. Meanwhile, Woori Bank will continue to grow its of financial products brand value and build on its long running history and tradition of 116 for sharing. years, by continuing to exist as Woori Bank through the merger. In line 5. Woori Bank Hansae Basketball team’s Second Straight Win at the Women’s Professional Basketball Championship and Won a Gold Medal at the incheon Asian Games The Hansae Basketball Team won the Women’s Professional Basket- ball championship two years in a row, receiving the title of triple crown by winning last year’s league along with the title of undisputed cham- pion, after winning the 2013 Asia Women’s Basketball Championship. In particular, despite intensive checks from its competitors, the team achieved outstanding results that bested other teams, such as nine consecutive wins after the opening game, to show off their reputa- tion as a famous basketball team. Also, the manager, Wi Sung-Woo, and coach, Jeon Ju-Won, led the Korean women’s national basket- with the integration with WFH, Woori Bank carried out a reshuffle and incorporated the function and staff of the holding company, such as setting up the ‘Management Support Unit’ to be responsible for man- aging the privatization and the bank’s affiliates. The merger with WFH increased Woori Bank’s total assets to approximately KRW 250 trillion, m a k i n g i t a l e ad i n g bank with stable fund- ing to aid the privatiza- tion process. Strength in Our ValueSCUSTOMER STORY Daenong Bio Farming Association 1 Woori Bank haS alWayS Been there for CuStoMerS. Woori Bank has always been there for customers during the past 116 years and we will continue to help customers in the future. Achieved No.1 market share by contributing to making sprout vegetables popular in Korea. 025 Contributed to healthy meals at home by developing various food products that taste good and are nutritious. Woori Bank has Been a Big help to our customers. “Duringthemostdifficulttimeinmylife,WooriBank gavemeavaluableopportunitythatenabledmeto developfurther.Iwillalwaysbethankfulforthisand willrememberitfortherestofmylife.” CEO of Daenong Bio Farming Association Hwang, Sung Hun / A Customer of Yangjaebuk Branch Cultivating sprout vegetables and babyleaf vegetables, which are environmentally-friendly and chemical-free products - no chemical fertilizers or agricultural pesticides are used. Strength in Our ValueSCUSTOMER STORY 2 Dongyang Industrial Co., Ltd Ranked No.1 as automobile parts manufacturer in charge of casting, processing and assembling automobile parts. Woori Bank BuildS truSting relationShipS With CuStoMerS. As a reliable bank, Woori Bank builds close relationships by visiting customers face-to-face to provide a greater level of happiness and satisfaction for customers. 027 Woori Bank has Built a trusting relationship With us for 30 years “Ithinkthemostimportantthinginarelationship istrustbetweenoneanother.Iwasdeeplytouched byhowWooriBank’semployeestriedtohelpout bypayingvisitsinperson.” CEO of Dongyang Industrial Co., Ltd. Chun, Mal Sun / A Customer of Changwon Branch Achieved continuous growth through strenuous effort and perseverance. Provided top-notch quality based on trust. Strength in Our ValueSCUSTOMER STORY 3 ThE REDFACE Produced and sold about 1,000 types of products as Korea’s first outdoor mountain climbing clothing brand with a history of 50 years. Woori Bank helpS Corporate to groW and develop. Woori Bank has secured leadership in the development and growth of companies by creating new and more convenient financial conditions for them. We will provide financial services to as many customers as possible. 029 Woori Bank is a financial partner that can Be trusted. “Wewereabletoachievewhatwehavesofarbecause ofthesupportthatWooriBankgaveusatatime wheninneedofhelp.IamgratefulthatWooriBank wasthereforusasatrustingpartner.” Yoo, Young Sun / A Customer of Seocho-gu Office Branch CEO of THE REDFACE Delivered products to about 400 stores across the nation on a daily basis. Strengthened competitiveness through continuous research to find solutions to new challenges. Strength in Our ValueSCUSTOMER STORY 4 OKF Woori Bank takeS the lead in the overSeaS expanSion. Woori Bank is proud of providing 1st quality financial services to our customers which encouraged our customers to become global companies, and we will do our best to provide exceptional services based on the knowledge we have ac- cumulated over time. A global company specializing in beverage and food that produces about 700 types of products, including fruit juices, coconut drinks and sodas. 031 Aloe Vera King is the only Korean beverage that is being sold in about 155 countries. Woori Bank provides Big help to exporting companies. “IthinkWooriBankistheonlybankthat setsagoodexampleforexportcompanies. Iappreciatethespecialconsiderationsmade bytheBankforexportcompaniesandlook forwardtomaintainingagoodpartnership inthefuture.” CEO of OKF Lee, Sang Shin / A Customer of Korea Trade World Center Branch Produce only the best quality aloe from the U.S, Mexico and Thailand. Strength in Our ValueSWoori Bank’S aWardS 2014 • Financial Supervisory Service Prize in the Small Loan Finance Awards • Ministry of Science, ICT and Future Planning Grand Prize in the Private Sector of the ‘Smart Work Best Practice Contest’ • Korea’s Network for Social Enterprise Achievement Award for the Revitalization of Social Enterprise • Hosted by the Technology & Finance Center Grand Prize in the Technology & Finance Contest of Susongdong Daelim Banking Center, Credit Support Unit • Thebell Prize in Thebell Risk Awards • Seoul Metropolitan Fire & Disaster Headquarters Grand Prize in the 7th Outstanding Workplace for Safety Management • AsianInvestor Best Onshore Custodian 2014 • The Asian Banker Prize in the 2014 Best Korean Bank of Cash Management for Second Consecutive Year • Ministry of Gender Equality and Family Minister Commendation for Implementing Family Policies and Creating Family Culture • The Korea Economic Daily Grand Prize in the PB Service Sector of the 2014 Korea Luxury Brand Award • Maeil Business Newspaper Grand Prize in the Banking Sector of the 13th Korean Fund Awards • NEWSPIM Awarded the National Policy Committee Chairman Award for the CIB Sector: Boryeong LNG Terminal Construction Project in the 2014 NEWSPIM Capital Market Awards • The Korea Economic Daily Dedicated to the Hall of Fame for Grand Prize in the Customer Satisfaction Management Awards (Financial Sector) • League of American Communications Professionals Gold Prize of LACP Annual Report Competition Ranked 79th among the Top 100 Worldwide • Annual Report Competition Gold Prize of ARC Young-sun-ban-bo refers to always taking a step ahead of others if you want to suc- ceed. Our efforts to become more innovative, change in advance, and be ready for competition a step ahead of others will act as a huge competitiveness in better serving our customers for another 100 years. i B E C o M N G t H E W o r L D B E S t t o L E A D 01 BeCoMing the World BeSt to lead Worldwide Branch Network 184 networks D A E L o t t S E B D L r o W E H t G N M o C E B i I S S E N S U B E D A R T I L A N O T A N R E T N I 8 3 0 I S S E N S U B L A B O L G 6 3 0 I S S E N S U B T E K R A M L A C N A N F I I 0 4 0 t S e B d l r o a e m o c e b l l i w k n a B i r o o W k n a b g n d a e i l l l a b o g e n u n e g i i s ’ a e r o K g n e b d n o y e b g n o g i g n h s i i l b a t s e y b k n a b 1 . o N n i s s e n e v i t i t e p m o c l a b o g l i i g n d v o r p d n a e r u t u f e h t r e m o t s u c d e t a i t n e r e f f i d i . e d w d l r o w s e c v r e s i 036 gloBal BuSineSS As of December 2014, as a result of the merger with Saudara Bank, Woori Bank had entered into 18 countries with 184 overseas networks, including 14 branches (5 sub branches affiliated with larger branches), 7 subsidiaries (163 branches of subsidiaries) and 2 representative offices. By establishing the largest global network of all Korean banks, we aim to continue providing the growth potential for overseas expansion, as well as enable steady growth by implementing differentiated business strategies for each overseas network. rEViEW oF 2014 In 2014, despite a prolonged global economic downturn and fierce interbank competition, Woori Bank’s global business performance reached total assets of USD 14.7 billion (a 16.5% year-on-year increase), loans of USD 7.54 billion (20.0% year-on-year increase) and operat- ing income of USD 280 million. This was a result of a boost in business that was centered on high-quality assets, the strengthening of local- ized business, the restructuring of asset portfo- lios and an intensified fee business. Expansion of Overseas Networks On 30th December 2014, PT Bank Woori Indo- nesia merged with Saudara Bank in Indone- sia, which increased expansion into emerging markets based on experience and knowledge gained during the acquisition process and in- creased inroads into overseas markets through M&As. Besides focusing only on banking ser- vices, we also diversified our business to include microfinance, savings bank and installment fi- nance, such as acquiring ‘Malis’, a microfinance company in Cambodia in July 2014. We are conducting market research and fostering spe- cialists for new market entries into Central and South America as well as Africa. Major Highlights of Global Business -end 2014 Net Income (Unit: USD million) NPL Ratio (Unit: %) 122.7 1.23 0.90 114.64 Delinquency Rate (Unit: %) Liquidity Ratio (Unit: %) Woori Bank Annual Report 2014037 Development of Competitive Products and Services global business opportunities. In 2014, strate- gic business alliances were made with flagship In order to provide diverse products and ser- vices, Woori Bank has expanded the head office’s competitive products, which include mortgage loans, MMDA and revolving deposits for local markets. For retail customers, we offer a variety of services, including mortgage loans, installment finance, credit loans, credit cards and internet banking services. We also provide one-stop financial services from the early stage of entering into a new overseas market for local customers through close cooperation between the head office and overseas branches. banks in countries where the Bank is expected to advance (i.e. IS Bank in Turkey). This ex- panded our overseas branches and created new business opportunities. PLANS For 2015 The Global Business Unit establishes the basis for long-term growth by fostering local person- nel to set up an optimal local business base, and develops IT systems of global standard. Seeking to deliver profit diversification, the unit focuses on specialized business for each over- seas branch, development of localized products Fortified Management of Overseas Financial Institutions and a scaling-up of the fee business. Synergies are generated through intensifying business for The Global Business Unit focused on expanding the financing volume through stronger relation- ships with overseas financial institutions as ma- jor financing sources, to prepare for changes in the financial environment, such as the prediction of interest rate increases in the U.S. In addition, MOUs were signed with prestigious overseas financial institutions enabling the expansion of target customers among domestic and overseas branches. Woori Bank will increase overseas profit from the current level of 6.8% to 10% by 2016, to become a leading bank that competes directly against prominent banks in the world with customer-oriented products and services. New Market Entries of Global Business M&A with Saudara Bank in Indonesia - PT. Bank Himpunan Saudara, Tbk (a listed company in Indonesia), 115 networks Acquision of Microfinance company in Cambodia - Malis Finance PLC, 5 networks Worldwide Branch Network (184 Networks in 18 Countries) Woori America Bank New York LA London Woori Bank Brasil Head Office Overseas Branch (14) & Sub-Branch (5) Overseas Representative Office (2) Overseas Subsidiary (7) Zao Woori Bank Woori Bank (China) Ltd Bahrain Dubai Dhaka(5) Gaeseong Seoul Tokyo Hong Kong Hanoi Woori Global Market Asia Limited Chennai Yangon Ho Chi Minh Kuala Lumpur Woori Finance Cambodia Plc Singapore PT Bank Woori Saudara Indonesia 1906 Tbk Sydney Strength in Our ValueS038 international trade BuSineSS Woori Bank’s International Trade Business Division is in charge of foreign exchange related services for both consumer/corporate banking customers in Korea and overseas. The unit is engaged in establishing and supporting Woori Bank’s FX-related marketing strategies, while also operating the International Trade Service Center, BPR (Business Process Reengineering), a specific department that handles banking tasks promptly and efficiently. Based on Woori Bank’s expertise that has accumulated over the past 116 years through transactions with the largest number of large enterprises, Woori Bank will provide high-quality consulting on domestic and overseas export/import financing and overseas investment. rEViEW oF 2014 In 2014, the International Trade Business Divi- sion scaled up competitiveness in the export/ import business and FX/remittance transfers by fostering FX specialists and strengthening ser- vices. This led to gaining the No. 1 market share position in export performance and foreign cur- rency money exchange performance with USD 199 billion and USD 3.7 billion, respectively. Woori Bank expanded its sales channel exclu- sively for foreign workers to cover not only Seoul metropolitan area, but also Gyeongsang-do region, and secured non-face-to-face marketing channels to enhance convenience in accessing financial services for foreign workers in Korea. Woori Bank reinforced its status as a frontier in the FX market, by being designated as the treasury bank of managing foreign currency re- serves for the National Pension Fund, one of the top four pension funds in the world. Also, Woori Bank took the lead in establishing the yuan trade settlement scheme through signing an agree- ment to promote won-yuan settlements with the Bank of Communications in China. Stronger Competitiveness in Export/Import Banking and FX Money Exchange/Remit- tance Leveraging our strength from being Korea’s No.1 bank in corporate banking, we achieved export/ import volume records of USD 313.2 billion in 2014, taking up a market share of 26.4% out of Korea’s top eight banks. Export performance achieved a market share of 30.8% with USD 199 billion, to achieve No.1 market share among Woori Bank Annual Report 2014039 Korea’s top eight banks. Also, Woori Bank’s yuan trade settlement schemes that are on the foreign currency money exchange volume re- increase. As part of these efforts, we launched a corded USD 3.7 billion to gain the No.1 market global deposit product package for yuan, as well share among Korea’s top eight banks, by set- as training specialists on yuan trade settlements, ting up money exchange centers(especially as and provided marketing support services for a foreign currency money exchange operator in yuan trade settlements. We will establish good Gimpo int'l airport) in areas highly frequented by cooperative relationships with the government in tourists from home and abroad, and proactively line with the market expansion, ensuring prompt responding to the FX market resulting from the response to changes. increasing number of foreigners coming to Ko- rea. By actively responding to the new market for foreigners, such as covering wage remittance for foreign workers and foreigners’ investment in domestic capital, remittance volume was re- corded at USD 477 million. Expansion of Channels and Services Specialized for Foreign Workers PLANS For 2015 In 2015, the International Trade Business Divi- sion aims to foster specialists in international trade and improve the quality of support as well as provide distinctive customer-specific services in export/import banking services and foreign currency money exchange/remittance as in 2014, to expand our market share. In order In 2014, the International Trade Business Division to meet foreigners’ higher demands for money raised the convenience of transactions through exchange/remittance, services and channels will flexible operating service hours and bolstering be further reinforced. Based on the knowledge customer contact points for FX catering to the accumulated by conducting operations as a customer needs of foreign workers. FX services treasury bank for foreign currency reserves for are even available on the weekends in the 8 the National Pension Fund, we will reaffirm our branches selected in the Seoul metropolitan status as a leading bank in FX by attracting new area with a high population of foreign workers; high net worth customers, while also doing our in particular, an FX Remittance Center, which best to establish yuan trade settlement schemes exclusively provides specialized services to for- that meet the increasing demands of customers eign workers, operates in Wongok-dong, Ansan. for yuan trade settlements. totAL VoLUME oF ExPort & iMPort (Unit: USD billion) 3 1 0 2 4 1 0 2 6 . 2 2 3 313.2 For foreign workers residing in the Yeongnam area, the Oedongsandan Branch in Gyeongju is open on weekends to provide services, while the Gimhae FX Remittance Center also provides specialized services for foreigners in the Gimhae area. As a result of an alliance with the Human Resources Development Service of Korea, we provide total FX services for our foreign custom- ers, including overseas remittances of departure guarantee insurance and dormant insurance claims. Dominance in the Yuan Trade Settlement Market In June 2014, Woori Bank signed an agreement for won-yuan settlements with Bank of Commu- nications in China, striving to dominate the won- Strength in Our ValueS040 finanCial Market BuSineSS The Financial Market Business Division consists of the Treasury Department that manages bank-wide liquidity, the Trading Department that handles F/X Dealing, marketable securities and financial derivatives and, the Settlement Support Department that performs the back office duties. In particular, we are a solid market leader among Korean banks in terms of trading derivative products, such as forwards, swaps and options based on a wide range of underlying assets, including interest rates, foreign exchanges, equities and commodities. rEViEW oF 2014 The Financial Market Business Division is the primary body that overseas funding and financial market activities such as FX, securities, com- modities, and derivatives trades. The division efficiently balances assets and liabilities through these activities to continually improve profitability while maintaining sound liquidity. In 2014, the division focused on improving NIM by maintain- ing optimal loan-deposit ratio, liquidity position and low-cost fundings. Bracing for the possible decrease of the BIS ratio due to Woori Financial Group’s privatization, we enhanced the capital ratio by issuing contingent capital securities in both domestic and foreign currencies. The for- eign currency contingent capital issue in the first half of the year was the first of its kind for Korean banks and paved the way for others to follow. Through these measures, the Bank’s liquidity ratios in domestic and foreign currencies are well above the regulatory guidelines, as well as Woori Bank Annual Report 2014041 strengthening BIS ratio. We also strengthened • Expaning into new funding markets and our competitiveness in FX and derivatives trad- diversifiying funding means to improve ing through expanding trading currencies and funding stability provided various hedging services to assist our customers with their risk management. Optimized Liquidity Management • Issuance of senior bonds and contingent capital securities in domestic and foreign currencies In the second half of 2014, Woori Bank was the 1st Korean bank to issue yuan-denominated bonds Kimchi Bonds. This groundbreaking 200 million yuan Kimchi bond, along with HKD 3.88 million of private placement bonds and EUR 13 million of P-Notes are significant in that they diversify our funding currencies, reduce dollar dependence, and increase stability of foreign In 2014, the Financial Market Business Division currency liquidity. dollar dependence. We also contributed to the stable BIS ratio, by issuing achieved stable management of foreign curren- KRW 7.1 trillion in senior bonds, KRW 0.16 cy reserves by managing liqudity buffer above trillion in domestic currency contingent capital the regulatory guidelines set by the Financial securities and USD 1 billion in foreign currency Supervisory Service. contingent capital securities at lower interest rates compared to other banks. Especially the foreign currency contingent capital securities was the trailblazer for Korean banks by being the 1st ever Korean bank to successfully issue them under the new Basel III standards. In or- der to prepare for a possible BIS ratio decrease from Woori Financial Group’s privatization pro- cess, we raised 0.7% of the Bank’s BIS ratio by issuing USD 1 billion in foreign currency contin- gent capital securities. • Compliance to regulatory guidelines As of the end of 2014, Woori Bank was well above the regulatory ratio set by domestic fi- nancial supervisor through proactively manag- ing surplus liquidity to achieve 123.10% do- mestic currency liquidity ratio, 121.29% foreign currency liquidity ratio and 253.66% medium and long-term foreign currency funding ratio. Liquidity Ratios (Unit: %) Liquidity Ratio (KRW) Liquidity Ratio (FC) 121.58 105.20 126.71 109.25 125.86 120.75 127.89 124.99 131.66 128.57 138.63 117.66 123.10 121.29 Dec-11 Dec-12 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 155 145 135 125 115 105 95 Strength in Our ValueS042 Strengthened Competitiveness in F/X and Derivative Tradings PLANS For 2015 In 2015, the Financial Market Business Division In 2014, the Financial Market Business Division will maintain the Liquidity Coverage Ratio (LCR) focused on strengthening our competitiveness at an optimum level by managing high-quality in volatile market and changing market environ- liquid assets and controlling net cash flows. In order to effectively manage liquidity, we will diversify funding maturities, and reducing financ- ing costs by increasing CD issuance. In addition to liquidity, we will continue to diversity trading strategies in foreign exchange, derivative arbi- trage, and hedging on currencies and interest rates to increase profitability on trading activities. We also plan to achieve the No.1 market share in foreign exchange and derivative transactions with large enterprises and major government agencies. Moreover, we will be the first Korean bank to structure options on European stock in- dexes and commoditiesto provide hedging tools to securities and insurance companies. This is expected to increase our non-interest profits. ment. • F/X Trading In foreign currency trades, Woori Bank has strengthened trading activities in Mexican Peso, South African Rand, Polish Zloty, Rus- sian Ruble, and Chinese Yuan, diversifying portfolio of trading currencies. Also, we were selected as a market maker in the won-yuan direct dealing market by the Bank of Korea and the Ministry of Strategy and Finance, in addi- tion to be the first Korean bank to successfully trade won-yuan forwards. • Derivatives In derivative markets, we strengthened deriva- tive trading and profitability by increasing arbi- trage transactions and taking positions through forecasting market variables, such as domestic and international policies and fluctuations in demand and supply. We also launched our FX SOS system to our SME customers. This sys- tem provides real-time consultation services on foreign exchange, including market conditions, outlooks and risk management. Woori Bank Annual Report 2014i i P r o V D N G o P P o r t U N t E S t o G r o W i i 02 providing opportunitieS to groW total Number of SME Customers 963,968 i i W o r G o t S E t N U t r o P P o G N D V o r P i i I G N K N A B E T A R O P R O C 8 4 0 I G N K N A B T R A M S 6 4 0 I G N K N A B E M S 0 5 0 I G N K N A B L A N O T U T T S N I I I 2 5 0 I G N K N A B T N E M T S E V N I 5 5 0 y t i n u t r o p p d a e l e h t e k a t l l i w k n a B i r o o W i d n a g n c n a n fi & g n i t a v o n n i n i i s e c v r e s g n k n a b i l i a t i g d g n c u d o r t n i i o s a l e l i h w , s d n e r t l i a c n a n fi t i u s o t e h t t c e fl e r t a h t l s n o i t u o s g n d v o r p i i , i g n k n a b l a n o i t u t i t s n i d n a e t a r o p r o c , r e m u s n o c n i s r e m o t s u c f o s d e e n h t w o r g f o l e v e l h g h i a i e v e h c a o t . s r e m o t s u c r u o h t i w 046 SMart Banking The Smart Banking Business Division is in charge of establishing Woori Bank’s strategy for smart banking, as well as the exploration of new markets. In order to make a prompt response to the smart banking market that demonstrates exponential growth, while also achieving market dominance in the electronic payment/remittance market in alliance with ICT companies, the Smart Banking Business Department and the FinTech Business Department was formed within the division. As of the end of 2014, 13.81 million customers have subscribed to using Internet Banking and Smart Banking services. Along with about 7,100 ATMs and by utilizing state-of-the-art technologies through smart phones and the internet, we strive to become a bank that is always close to customers. rEViEW oF 2014 In 2014, the Smart Banking Business Division opened new smart banking services, so that we can provide convenient smart banking services to customers. We also launched ‘Woori Mobile Bankbook’, an innovative way of making trans- actions without a bankbook, which is the first of its kind in the financial industry. In addition to this, we improved customer convenience by providing various services, including the ‘Smart Manager’ services, exclusively for managing online customers and convergence services of non-face-to-face channels and branches. We strove to secure the future financial market by playing a leading role in launching the ‘Bank Wallet Kakao’, being implemented jointly by the banking sector in the rapidly growing mobile payments market. Providing New Smart Banking Services Aiming to provide better financial services to customers, Woori Bank upgraded its smart banking services. The access stages of transac- tions were reduced from five to three stages to improve the convenience of users, which also provided better User Interface (UI) and User Ex- perience (UX). Moreover, we complied with mo- bile accessibility guidelines and provided a new form of banking transactions, including inquiries and transfers through a security keypad to se- nior customers who prefer traditional banking services, as well as ensuring socially vulnerable groups such as the disabled have access to convenient smart banking services. Exceeded KrW 10 trillion of sales for non-face-to-face products As of the end of December (Unit: KRW trillion) 10.4 (No.1 M/S) No.1 M/S iN SMArt BANKiNG SUBSCriPtioN rAtE AND UtiLizAtioN rAtE AMoNG BANK- WiDE CUStoMErS As of the end of December 2014 (Unit: %) Subscription Rate Utilization Rate 42 25 Woori Bank Annual Report 201410.4 047 Leading the Smart Banking Market Expanding the Future Financial Market At a time when the number of smartphone users In order to respond to the increasing size of in Korea exceeds 40 million, customers demand mobile payment services, Woori Bank played a faster and more convenient services. After 46 leading role in the launch of ‘Bank Wallet Kakao’ years of providing banking services through services that were implemented jointly in the branches since August 1977, Woori Bank was financial sector. We also strove to expand the the first Korea’s financial industry to launch the mobile payments market by launching exclusive ‘Woori Mobile Bankbook’ in 2014, an innova- products, in alliance with Daum Kakao, and con- tive way of receiving services through smart ducting joint marketing activities. Meanwhile, we phones without the need to visit branches with are continuously seeking cooperation the leading a bankbook. The existing electronic bankbook companies in domestic and foreign ICT markets only provided services such as lowering interest and global FinTech companies to prepare for the rates and updating bankbooks offline, as ad- ditional services to financial products exclusively for smartphones. However, the ‘Woori Mobile Bankbook’ set a new paradigm that enabled customers to check their own bankbook details easily, as well as make withdrawals from ATMs. As a result, in December 2014, we received the Grand Prize in the Private Sector of the ‘Smart Work Best Practice Contest’ hosted by the Ministry of Science, ICT and Future Planning, in recognition of the excellence of the service. Increasing Customer Convenience via the Omni-Channel Strategy future market. PLANS For 2015 In 2015, the Smart Banking Business Division’s targets are to secure the competitiveness of fu- ture channels to dominate the FinTech industry as a new momentum for growth and to establish smart work processes for improving channel ef- ficiency. In order to strengthen profitability and manage risks, we aim to provide the safest and most convenient security services by proactively targeting e-commerce companies and expand- ing the ratio of transactions through non-face- to-face channels. Moreover, Woori Bank will Woori Bank improved customer convenience achieve future growth by designing the future by providing omni-channel customer services vision of financial IT, including reinforcing market- that integrate the services of branches and non- ing capabilities through big data, as well as pro- face-to-face channels, instead of multi-channel viding high value to customers by continuously services that were provided separately through giving them access to better smart financial ser- branches and non-face-to-face channels. Due to vices. the increasing use of non-face-to-face channels these days, we provided the ‘Smart Manager’ services, which began in June, to enhance the convenience of non-face-to-face customers. Meanwhile, branches started services for the ‘Convenient Issuance of Digital Certificates’ in November. In order to expand the convenience of use for customers, we also started the ‘Smart Loan Consultation’ services in February where customers can get loan advice without having to visit branches after making an application through the internet and smart banking services and agreeing to the provision of personal infor- mation, as well as the implementation of ‘Smart Convenient Loans’ that enable the extension of loans without having to visit a branch. Strength in Our ValueS048 Corporate Banking The Corporate Banking Business Unit is in charge of services for corporate customers, including Korea’s top large enterprises, such as Samsung, LG and POSCO, to cater to the diverse financial needs of corporate customers in a timely manner. As a result of providing exceptional services to the highest number of large enterprises in Korea, Woori Bank’s Corporate Banking Business Unit prides itself in having provided the best financial services to our corporate customers, which has enabled them to become global players during the past 116 years. We will strive to provide our expertise to a larger number of customers. rEViEW oF 2014 In 2014, the Corporate Banking Business Unit strove to satisfy the financial needs of large en- terprise customers. Woori Bank is currently ex- ploring various financial needs through the ‘Woori Diamond Club’, a meeting of the CEOs of large Korean enterprises, while also strengthening the relationship with large enterprise customers. As of 2014-end, the Corporate Banking Business Unit (including Corporate Finance Center and IB) posted total assets of KRW 31.1 trillion, net in- come of KRW 103.5 billion and an export/import volume of USD 2,500. Continuously Strengthening Relationships As corporate customers developed into global players, their financial needs have changed rap- idly and have become more diverse. Woori Bank currently runs the ‘Woori Diamond Club’, a meet- ing of the CEOs of large Korean enterprises that have been up and running since 2003. The club’s 12th anniversary marks a time to strengthen our relationships with our corporate customers, as well as provide services to respond to changes in the environment by identifying the financial needs of our customers in a timely manner. total Assets of Corporate Banking -end 2014 (Unit: KRW trillion) 31.1 total Credits of Main Debtor Groups in 2014 (excluding management/ financial improvement) (Unit: KRW trillion) 26.2 total Credit Exposure of Main Debtor Groups -end 2014 (Unit: KRW trillion) 37.4 Woori Bank Annual Report 2014049 Developing Products to Improve Financial Security With the adoption of the IFRS in 2012, compa- nies are required to record bills bought in foreign currencies as debts, implying that exporters with a large volume of such bills would be sub- ject to poorer financial soundness. As such, we developed a customized product for exporting customers by buying out export account receiv- ables D/A (Document against Acceptance) for high-net-worth, large enterprises and overseas subsidiaries in main debtor groups on a Non- Recourse Condition (before acceptance of the shipping document and the fixing of the maturity date by the importer). With this in place, corpo- rate customers can avoid having to record the liability for bills bought on account (resulting from the adoption of the IFRS), and can also improve their financial security. PLANS For 2015 In 2015, the Corporate Banking Business Unit plans to achieve qualitative growth through cus- tomized business for each specific category. We will achieve this goal by implementing cat- Extending Support for Large Enterprises/ SMEs At a time when CSR (Corporate Social Re- egory specific marketing, accelerating syner- sponsibility) is emphasized, Woori Bank signed gies, strengthening fee business and efficiently cooperation agreements with large enterprise managing risks. Optimized financial services will customers, and developed product packages be provided for companies based on category- to extend funds to SMEs with low interest rates. specific factors and investment plans. Moreover, As of 2014-end, we have extended funds worth synergy will be maximized by exploring high- KRW 161.9 billion to 381 companies through performing partner companies and expanding the Partnership Loan for Large Enterprises and retail transactions for employees. Non-interest the Partnership Guarantee Loan for Large En- income will scale up by arranging and involving terprises launched in August 2008, and we have more in IB, including infrastructure finance and also reduced cost of financing for SMEs by pro- acquisition finance as well as intensive sales in viding the SMEs Partnership Loan (launched in niche markets with F/X, e-banking and derivative May 2013). Serving the highest number of large transactions. Assets soundness will be improved enterprise customers in Korea, we utilize a broad customer network to contribute to the by shutting off the influx of low profit generat- ing assets, and financial soundness will be en- shared growth of large enterprises and SMEs. hanced through risk management on the basis of perceiving risk signals. Woori Bank is the major creditor bank of 16 large enterprises (Total number of large enterprises under main creditor bank management: 41) 31.1 37.4 Strength in Our ValueS050 SMe Banking The SME Banking Business Unit is in charge of financial services for corporate customers, especially SME customers. At the end of 2014 there were approximately 960,000 SME customers, whose total loans under management amounted to KRW 70.3 trillion. Woori Bank provides competitive products, and diverse financial and non-financial services to better satisfy SME customers. The SME RM (Relationship Manager) system, a channel of SME banking pool specialists, is available to provide the best financial services in corporate banking. totAL NUMBEr oF SME CUStoMErS 8.1% 3 1 0 2 4 1 0 2 7 6 3 , 1 9 8 963,968 totAL LoANS oF SME BANKiNG (Unit: KRW trillion) 3.7% 3 1 0 2 4 1 0 2 8 . 7 6 70.3 rEViEW oF 2014 In 2014, the SME Banking Unit achieved notice- able results, such as increasing the total number of SME customers to around 70,000 and in- creasing the total loans of SME banking by KRW 2.5trillion. The SME Banking Unit led marketing strategies that focused on attracting new high- net-worth SMEs and securing their retention. As in 2013, key categories were targeted, such as policy financing, guarantee secured loans and loans for equipment in 2014. For higher satis- faction and service levels for SME customers, various preferential programs were implemented with a greater focus on training and developing a specialized workforce for SME banking. Implementing Marketing Activities to Target High-yield SMEs As in 2013, the SME Banking Business Unit pro- vided wide-ranging marketing data on high-yield SMEs and partner companies of large enter- prises to help attract high-net worth customers to branches in 2014. In January 2014, we also launched the ‘High-yield Enterprise Master Loan’ to strengthen competitiveness, which involved offering competitive interest rates and preferen- tial ceilings for high-yield SMEs, to achieve an impressive sales record of KRW 6.8 trillion for its balance at the end of 2014. As a result of the SME Banking Business Unit’s continuous efforts to increase high-yield assets, the number of high-yield SMEs of the level of BBB and above increased from 228,678 at the 2013 year end by 26,883 to 255,561 at the 2014 year end. Focusing Marketing on Industrial Complexes In order to intensively attract enterprise custom- ers located in industrial areas, the SME Banking Business Unit expanded the target scope by re- modeling the ‘Woori Industrial Complex Loan’, a specialized product for enterprises residing in in- dustrial complexes, while also provided market- ing data about these enterprises at branches. As a result of intensive marketing activities target- ing industrial complexes, the balance of ‘Woori Industrial Complex Loan’ increased from KRW Woori Bank Annual Report 2014051 468.2 billion at the end of 2013 by KRW 536.2 ogy Enterprises’ in August 2014 and the ‘Woori billion to KRW 1,004.4 billion at the end of 2014. Creative Enterprise Partner Loan’ in October 2014. Vitalizing Policy Financing & Guaranteed Loans In 2014, the SME Banking Business Unit fo- cused on policy financing and guaranteed Preventing Customer Turnover & Supporting Consulting Services In order to continuously increase assets, despite loans, so that the balance for each increased intensive competition with other banks, the SME by KRW 1,007.1 billion and KRW 265.4 billion, Banking Business Unit newly implemented the respectively. In order to increase policy financ- ‘Early Bird Customer Retention’ program, pre- ing, the SME Banking Business Unit signed new venting the loss of existing customers to other agreements with local governments and public banks. The program proactively identified the institutions, and also conducted various train- ing programs and provided on-site support by needs and complaints of customers before the existing loans expired, so that customers whose bolstering competitiveness in interest rate for expiry date was coming up did not go to other policy financing. In particular, the balance of indi- banks. Woori Bank has been providing corpo- rect loans (on-lending loans) targeting high-yield rate consulting services for the longest time out SMEs among policy financing products, showed of all Korean banks. In 2014, we contributed an outstanding improvement with an increase to the increase of sales and operating profits of of KRW 1,028.6 billion year-on-year. In order to corporate customers through 65 consulting proj- increase guaranteed loans, in July 2014, we ects conducted. The Corporate Consulting Team launched and sold the ‘Woori Group Purchasing within the SME Banking Business Unit provides Guaranteed Loan’ as an exclusive agreement various types of consulting services for improv- through the Korea Credit Guarantee Fund and ing the corporate values of corporate custom- joint development works. ers, including consulting on management, CFO, family business succession and operation. Providing Diverse and Specialized Products In 2014, the SME Banking Business Unit PLANS For 2015 launched diverse specialized products, including In 2015, the SME Banking Business Unit plans the ‘High-yield Enterprise Master Loan’, a pref- to continuously increase high-yield assets, by erential product for high-yield SMEs to increase launching new specialized products for the main SME banking loans, and the ‘Woori Group Pur- chasing Guaranteed Loan’, a product of exclu- target groups to attract new customers and by providing competitive interest rates for existing sive agreement in alliance with the Korea Credit corporate customers to prevent their turnover. Guarantee Fund. In order to strengthen the In the end, taking into consideration the active Bank’s profitability by taking measures against overseas expansion of SMEs recently, the SME reduced loan-deposit margins due to now com- mon low-interest rates, we launched the ‘Woori Banking Business Unit plans to strengthen re- lationships with existing customers and attract Export Promotion Finance’ and the ‘Exporting new customers through a new overseas expan- Company Master Loan’, which are specialized sion program that utilizes the Bank’s overseas products targeting export/import companies that network. conduct many FX transactions. In line with the government’s policy on vitalizing technology fi- nancing, we strengthened our support for SMEs with outstanding technology, by launching the ‘Woori Creative Loan for Outstanding Technol- Strength in Our ValueS052 inStitutional Banking totAL DEPoSitS oF iNStitUtioNAL BANKiNG -END 2014 (Unit: KRW trillion) 6.8% 3 1 0 2 4 1 0 2 . 1 9 1 20.4 The Institutional Banking Business Unit is divided into the Institutional Sales Strategy Department, to cater to the central government, local governments and public institutions, and the Public Fund Sales Department, to manage the municipal and provincial treasuries of local governments. Moreover, we are the only bank to utilize specialists in institutional operations (institutional RM) to provide first rate financial services to institutional customers. As of 2014, our institutional customers include the Seoul Metropolitan Government and its 25 district offices, the Ministry of Land, Infrastructure and Transport, the National Health Insurance Corporation and the Korean Railroad Corporation. The presence of such customers reaffirms our position as Korea’s largest primary bank for public institutions. rEViEW oF 2014 The Institutional Banking Business Unit has left a mark on history by being a treasury bank for major public institutions for 100 years, by being reselected as the Seoul Metropolitan Govern- ment’s treasury bank, as well as acting as the treasury bank for 24 district offices. During a period of 100 years as the Seoul Metropolitan Government’s treasury bank, Woori Bank has become a leading financial institution for local residents by contributing to regional develop- ment and expanding the scope of transactions with the central government, local governments and major public institutions, including affiliated institutions of the Seoul Metropolitan Govern- ment. In line with the government’s policies, Woori Bank provided specialized services for the governmental agencies’ planned relocation to the provinces, to attract 34 institutions out of 102 institutions that completed the selection of its transaction bank as of 2014, with plans to attract more institutions as relocation continues until 2016. As of the end of 2014, the Institution- al Banking Business Unit operated total deposits of KRW 20.4 trillion and total loans worth KRW 3.2 trillion, while maintaining relationships with about 3,700 institutional customers. Woori Bank Annual Report 2014053 Making History as the Seoul Metropolitan Government’s Treasury Bank for 100 Years borne from being the treasury bank for 100 years. Moreover, we were able to develop world- Since the treasury agreement signed with Gyeongseongbu (Seoul) in 1915, Woori Bank has done a remarkable job in acting as the Seoul Metropolitan Government’s treasury bank for 100 years, by collecting tax revenue and by managing the payment of annual expenditures. In 1988, we started the first comprehensive management system for revenues and expendi- tures, and established the OCR Center in 1991, class management capability as a treasury bank by establishing the ETAX system in 2001, the annual expenditure e-banking system in 2004, the revenue e-banking system and the compre- hensive management system for treasury bank affairs in 2011. Based on the advanced treasury management system and high-quality specialists in the relevant fields, Woori Bank has become a “Partner of Seoul Hope” that contributes to the Seoul Metropolitan Government’s tax and finan- cial management tasks, the convenient tax pay- ment of citizens and the development of local communities. Seeking New Projects from the New Government In order to seek new governmental projects where financial institutions can make contribu- tions and support the R&D projects initiated by the government, Woori Bank has set up a R&D Team within the Institutional Banking Business Unit, to conduct R&D projects together with the Ministry of Trade, Industry and Energy (MOTIE) since 2013. We have continuously maintained a business agreement with the Korea Foundation for the Promotion of Private Schools, while also participating in the program for ‘Halving Dormi- tory Fees’ pledged by the new government. Moreover, we continuously conduct cooperative projects with the Korea Institute of Startup & Entrepreneurship Development to support the startup enterprises of the Small and Medium Business Administration, thereby establishing the self-reliance foundation for startup entre- preneurs and SMEs through the 2014 Korea Startup League. Strength in Our ValueS054 Searching for New Growth Engines By Initiating New Projects PLANS For 2015 In 2015, the Institutional Banking Business Unit The Institutional Banking Business Unit not only continuously searched for new projects and provides banking services for institutional cus- joint projects, and actively participated in new tomers, but also offers business opportunities projects initiated by the government, to provide aligned with new projects undertaken by institu- financial services that help establish the self- tions for SMEs and individuals. In particular, we reliance foundation of SMEs. Moreover, we reaf- were National Pension Service’s only bank to be firmed cooperation with the Seoul Metropolitan selected for foreign currency control in 2013, to Government and its affiliated institutions by promptly provide foreign exchange and secu- being reselected as the Seoul Metropolitan Gov- rity trading services. In addition, we have been ernment’s treasury bank, being able to provide selected for Korea Electric Power Corporation financial services that help with joint projects and (KEPCO), KCA, Korea East-West Power and individuals. Also, when the relocation of public BIFC that moved to the Innovation City, while institutions begins in full scale, we will focus also assisting in providing financial services for SMEs through an agreement with the Korea In- stitutional Complex Corporation. on institutional banking business through the nation-wide network to help usher in an era of decentralization, by setting up branches in new ‘Innovation Cities’. Major institutional Customers of institutional Banking • Local Government • Public Agency Woori Bank Annual Report 2014055 inveStMent Banking The IB Business Unit provides a variety of IB services, including syndicated loans (M&A, SOC, etc.), securities investments (stocks, collective investment securities, equity-linked securities, etc.) and the granting of credit. We offer customized financial structures that cater to the needs of the project funds that our corporate customers pursue based on strong relationships with them. For the first time as a Korean bank, Woori Global Market Asia Ltd., specializing in overseas IB investment in Hong Kong, was established in October 2006. As such, Woori Bank has proactively tapped into overseas IB markets by scaling up capital in October 2013. rEViEW oF 2014 In October 2014, the global economic situation was aggravated due to the financial crisis enter- ing into a recovery phase, with quantitative eas- ing in the U.S. and the volatility of global equity and bond markets going back to previous levels seen before the financial crisis. Implementing Selective Business Initiatives In Korea, major annual macro-economic indica- tors show positive signs. Nevertheless, recovery is slow in industries like construction, shipbuild- ing, maritime and steel, while marginal business- es are increasingly proactive. As such, the IB Business Division carried out selective business initiatives that take stability and profitability into consideration. First, we made efforts to forge cooperative ties with financial institutions, government agencies and enterprises, while achieving outstanding Strength in Our ValueS056 performances in relevant fields by focusing sales PLANS For 2015 capacity on power generation/energy and M&A. As a result, as of the end of 2014, the division holds KRW 11 trillion in total assets (includ- ing off-balance sheet assets). We raised asset soundness by continuously implementing port- folio rebalancing through active management of low-profit assets and potentially insolvent assets. Moreover, we improved profitability by increas- ing the volume of loans for high-profit projects, so that large profits in the form of from dividends and sales were recovered from high-yield invest- ment assets that have been previously invested. In 2015, the IB Business Division will focus its capacity on power generation/energy and M&A to strengthen its competitiveness in the IB mar- ket where competition is growing. We will also proactively take part in overseas projects, in ad- dition to existing projects focusing on domestic markets, to enhance profitability and acquire high-yield assets. In addition to overseas proj- ects in alliance with policy finance institutions, we will utilize the Bank’s overseas network, including the overseas office in Hong Kong, to vitalize overseas IB businesses by searching and participating in high-yield SOC projects and syn- dications. total Assets of investment Banking -end 2014 (Unit: KRW trillion) 11.0 Loans 40% Off-balace sheet items 41 % Securities 19% investment Banking organization investment Banking Division Investment Banking Dept. Project Finance Dept. Woori Global Mar- kets Asia Ltd. HK IB Strategy Corporate Finance Shipping & Aviation M&A Principal Investment ABS SOC Power & Energy Overseas Sales Sales Support Woori Bank Annual Report 201403 enhanCing openneSS to Serve i E N H A N C N G o P E N N E S S t o S E r V E total Number of Customers More than 20 million E V r E S o t S S E N N E P o G N C N A H N E i I E C N A N F E T A T S E L A E R 0 6 0 I S S E N S U B T S U R T & N O S N E P I 2 6 0 ) ( M W T N E M E G A N A M H T L A E W 4 6 0 I G N K N A B R E M U S N O C 6 6 0 r e m o t s u c t s e h g h i e h t s e v e h c a i t a h t k n a b r e n t r a p e b a l i l e r s a S S e n n e p e v r e s l l i w k n a B i r o o W i g n e b s y a w a l y b , n o i t c a f s i t a s d n a s r e m o t s u c r o f e r e h t s t c u d o r p t s e b e h t g n d v o r p i i i . s e c v r e s l i a c n a n fi d n a 060 real eState finanCe For systematic and professional management of real estate financing, the Housing Finance Division has been transformed into the Real Estate Finance Business Unit. Also, the unit manages the National Housing Fund of the Ministry of Land, Infrastructure and Transport as a general treasury bank. We strive to satisfy the diverse needs of our customers by providing products that build on Woori Bank accounts, as well as the National Housing Fund products that are available for those on a low-income. Demand-side Housing Subscription Loans (Unit: %) 39.7 (No.1 M/S) rEViEW oF 2014 In 2014, the Real Estate Finance Business Unit ranked 1st in M/S amongst national housing funds. In recognition of excellent performance over the past 6 years, we have been providing a variety of real estate finance products to our customers as a general treasury bank for the National Housing Fund. We also made a pre- emptive response to the prolonged recession in the real estate market and led the market in generating demand for real estate financing by searching for new markets. Being Selected as the Lead Agency for Standard PF Loan The Standard PF Loan is a product package consisting of the ‘Intermediate-term Loan’ and the ‘Baro Dream Loan’, a non-recourse ac- counts receivable loan that supports construc- tion expenses of subcontractors. By satisfying the needs of individuals for housing, SME sub- contractors and large enterprise construction companies, the Standard PF Loan has become a representative product in the PF real estate finance market. Expanding Our Customer Base as a General Treasury Bank of the National Housing Fund The National Housing Fund project is important in broadening the options for consumer prod- ucts (including products for the socially vulner- able) of real estate financing. Woori Bank has taken the lead in seamlessly procuring and ex- Woori Bank Annual Report 2014061 ecuting funds as a general treasury bank of the National Housing Fund. As of the end of 2014, Woori Bank had a market share of 39.7% in loans for subscribers and a market share of 27% in savings for housing subscriptions. Through- out 2014, 1.15 million new customers prepared themselves to fulfill their dream to own a house using savings for housing purchases. Woori Bank will strive to establish a system where more customers can get access to the National Housing Fund. Leading the Domestic Real Estate Finance Market In 2014, the Real Estate Finance Business Unit led in developing products and reforming the PLANS For 2015 system in order to make preemptive responses to changes in the financial market. We are ac- tively engaged in supporting the soft landing of household debts and the house-poor and en- suring housing market stabilization, by launching the ‘Safe House Rental Loan’, a new concept of loans for rental deposit that can take care of the tenants’ concerns about rental deposits and re- duce the burden of raising large sums of money all at once, and the ‘My House Didimdol Loan’, integrating the money for purchasing from the National Housing Fund (including for first-time buyers) and the preferential type of Korea Hous- ing Finance Corporation’s Bogeumjari loans. We also contributed to the government’s housing finance support policies and in ensuring housing market stabilization by being the only bank to support the ‘Shared Mortgage’, which adopts a new advanced financial engineering tool. In 2015, we will continue to dominate market share by ranking 1st in the National Housing Fund. We will strive to attract new loans for sub- scribers and savings for housing subscriptions, including rental deposit loans and first-buyer housing loans. Moreover, we will actively support real estate welfare projects for citizens and make continuous efforts to facilitate national housing in a righteous way through our accumulated expe- rience in financing and operating funds. We will also actively take part in the government’s real estate finance measures, and actively support extending funds to those who want to purchase their own houses by securing optimal profitability and an asset structure with the lowest risk. This will enable us to expand mortgage loans to KRW 4 trillion, to play a leading role in attracting con- sumer banking assets even in times of economic downturn. HoUSiNG SUBSCriPtioN SAViNG (Unit: %) 0.5% 3 1 0 2 4 1 0 2 . 5 6 2 27 Strength in Our ValueS062 penSion & truSt BuSineSS As the retirement pension market has been expanding, the Pension & Trust Business Division was launched in 2009 to support the efficient management of retirement resources for retail customers. From the initial stage of adopting the retirement pension system, we provided differentiated customized services through comprehensive retirement pension consulting. We lead the retirement pension market by providing total financial services, which offer customized optimal products that suit our customers’ investment tendencies through advanced processes with seasoned investment specialists available. rEViEW oF 2014 In order to guarantee a stable retirement for the workforce and prepare for changes in the labor market, such as a rapidly aging population, Woori Bank has been fostering customer-orient- ed businesses with a long-term perspective. Fostering Customer-Oriented Businesses We provide the ‘Happy Life Retirement Pension Newsletter’ once a month to companies and workforces that subscribed, which covers major issues and recent trends for retirement pen- sions, information on asset management and di- verse information. We launched the ‘Happy Life Lifetime Bankbook for Retirement Pensions for subscribers. The product enables subscribers to conveniently access their retirement annuities as they accumulate their pensions, allowing them to check their bankbook to see how their funds are being managed. We developed and managed a ‘Maturity Designated Time Deposit’, which en- ables customers to designate their individualized maturity, depending on their financial plans and needs. Woori Bank Annual Report 2014063 Our retirement pension systems were upgraded to reflect the major amendments in the Em- ployee Retirement Income Security Act. We also offer a variety of services, including providing updates and notifications to subscribers through the ‘Welcome Letter’, conducting follow-up through the Bank’s ‘Happy Call System’ and providing educational support through the ‘Re- tirement Pension Training Management System’. PLANS For 2015 Having recognized retirement pensions as core growth industries of the future, we are engaged in active marketing. We do this by responding to market changes to secure a stable customer base and long-term profitability so that we can dominate the retirement pension market early on. In 2015, the Pension & Trust Business Divi- sion plans to establish a foundation for sustain- In 2014, the amount of retirement pension as- sets stood at KRW 9,643.9 billion, up KRW able growth by conducting customer-specific marketing, while also strengthening business 2,121.9 billion from the previous year. The num- competency to improve profitability and secure ber of companies subscribed to retirement pen- continuous growth as part of its efforts for quali- sions increased by 1,330 from the previous year tative improvement of trust management. We will to 28,011, showing an increase of 5.0% as of continuously focus on enhancing the efficiency the end of December, 2014. Also, the number of sales channels. Based on an abundant spe- of subscribed employees increased by 115,135, cialized workforce, supportive training systems, which is an increase of 10.4% to 1,226,400 diverse customized products and up-to-date year-on-year. management expertise, we will lead the retire- ment pension market. totAL ASSEtS oF rEtirEMENt PENSioN (Unit: KRW billion) totAL NUMBEr oF CoMPANiES SUBSCriBED to rEtirEMENt PENSioN totAL NUMBEr oF EMPLoyEES SUBSCriBED to rEtirEMENt PENSioN 28.2% 5.0% 10.4% 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 3 1 0 2 4 1 0 2 0 2 2 , 5 7 96,439 1 8 6 , 6 2 28,011 5 6 2 , 1 1 1 , 1 1,226,400 Strength in Our ValueS064 Wealth ManageMent(WM) The Wealth Management (WM) Division is in charge of overseeing Private Banking (PB) services that target High Net Worth (HNW) customers. The WM Division consists of the WM Strategy Department; it establishes and implements business strategies for PB services, and manages Woori Bank’s affiliated products (funds, bancassurance), developing asset management products and leading the retirement market. As of 2014, we provide Korea’s first-rate services in comprehensive asset management and consulting services to around 130,000 HNW customers through an independent PB brand. rEViEW oF 2014 In 2014, the WM Division hired and trained about 180 new specialists as part of its ef- forts in developing PB specialists. In order to strengthen the asset management capacity of all employees, we established a permanent training system, online and offline, to provide training for new products in a timely manner. As a result, we achieved huge growth in the fund and bancassurance markets, while around 10,000 new HNW customers started transac- tions with Woori Bank. In recognition of these results, we had the honor of winning the ‘Korea Premium Brand Award’ for five consecutive years and the ‘Customer-Preference Brand Award’ for three years in a row. Providing Systematic and Scientific Financial Planning Services In 2014, Woori Bank established a compre- hensive asset management system to provide customized investment strategies for analyzing customers’ transaction information and their investment trends, thereby we are able to eas- ily and conveniently find optimal solutions for customers. In recognition of the high interest on retirement incomes, we also provide diagnostic tools and consulting to prepare for retirement based on expected retirement income. totAL NUMBEr oF WM CUStoMErS (Unit: thousand) 3 1 0 2 4 1 0 2 10% 2 2 1 132 totAL DEPoSitS oF WEALtH MANAGEMENt BANKiNG (Unit: KRW trillion) 3 1 0 2 4 1 0 2 2.4% 6 . 4 3 37.0 Woori Bank Annual Report 2014065 Globalizing Private Banking (PB) Services Woori Bank provides customized Private Bank- ing (PB) services, catering to customer needs in around 580 PB branches. The Bank provides asset management consulting services and seminars on taxation and real estate for potential local customers, leveraging overseas networks. PB services will also be globalized along with the Bank’s expansion of overseas networks. Launching ‘100 Years of Age Research Team’ in Preparation for the Aging Trend Fostering Specialized Private Bankers In order to foster competitive private bankers, Woori Bank launched the ‘100 Years of Age Research Team’ in July 2012 in preparation for Woori Bank operates PB Academy courses according to different needs. Moreover, more the advent of an aging population. The team detailed training is provided for around 580 PBs conducts R&D on processes and products to prepare in advance for the financial demands of the elderly population, which is likely to increase across the nation by holding PB seminars for self-control training and operating the PB Lead- ers Club. We also provide training through UC in scale. The Bank launched products exclusive- video training programs on a daily basis, includ- ly for retirees in 2014, including the ‘100 Years ing affiliated products (funds, bancassurance), of Shinyoung Youth Fund Series’ and the ‘100 taxation and real estate, to establish a cafeteria- Years of Woori Youth Card’. We also continu- type training system where the user can choose ously provided retirement consulting services to and listen to the training that is required. senior customers, by producing retirement plan- ning guidebooks and providing retirement train- ing to employees of our corporate customers. PLANS For 2015 In 2015, the WB Division aimed to become the leading bank in comprehensive asset manage- ment by placing the Asset Management Product Development Team, which was divided into an- other division, and the Customer Advisory Cen- ter, which provides advisory services on taxa- tion, real estate and legal affairs, under the same unit. It is expected to become easier and more convenient to promptly offer high-yield custom- ized products for PB customers and provide a comprehensive advisory service that meets the needs of PB customers. By utilizing the com- panies’ strengths to the maximum, we plan to attract around 10,000 HNW customers next year by implementing the Bank’s customized PB strategies built upon the foundation of the bank’s existing customers. Strength in Our ValueS066 ConSuMer Banking The Consumer Banking Business Unit is in charge of conducting overall business strategies for individual consumers, finding new markets, managing the retail organization, establishing business channel strategies and setting business strategies for universities and hospitals. We run a separate division within the Consumer Banking Business Unit for wealth management that requires more specialized services. We also work towards improving customer satisfaction with better products and services, by continuously searching for new markets and conducting CRM (Customer Relationship Management) activities. rEViEW oF 2014 In 2014, Woori Bank recorded growth of more than 1 million new customers for three consecu- tive years, exceeding 20 million individuals, while also continuously developing differentiated and innovative products. We provide first-rate finan- cial products and services for different stages of the customer life cycle through the Bank’s rep- resentative projects for attracting new custom- ers, including the Baby Project, School Project and Company Project, contributing greatly to retaining infants, students and office workers as customers. We also participate in the govern- ment’s projects for sharing growth, and this has been done by launching the ‘Woori Happiness Sharing’ product package, a nation-wide small donation account, to provide the benefits of high interest rates and tax reductions for customers and the Bank while attracting new custom- ers, including public officials and office work- ers. Meanwhile, in order to meet the increasing needs of customers, we increased the number of portable branches to provide convenient ser- vices to customers without limitations related to time or space. totAL DEPoSitS oF CoNSUMEr BANKiNG (Unit: KRW trillion) 5.2% 3 1 0 2 4 1 0 2 . 7 3 7 77.5 totAL LoANS oF CoNSUMEr BANKiNG (Unit: KRW trillion) 12.3% 3 1 0 2 4 1 0 2 4 . 3 7 82.3 Woori Bank Annual Report 2014067 Nationwide Branch Network -end 2014 (993 Branches) Gangwon (11) Chungbuk (16) Gyeongbuk (23) Daegu (29) Ulsan (10) Busan (56) Gyeongnam (29) Gyeonggi (220) Inchon (41) Seoul (463) Chungnam (24) Sejong (6) Daejeon (23) Jeonbuk (13) Gwangju (14) Jeonnam (12) Jeju (3) Implementing the Company Project for Attracting High-yield Companies and Employees In order to provide marketing tools that can help retain customers at branches, and attract new and potential customers, Woori Bank was the first in the financial industry to implement the Company Project based on the ID cards of of- fice workers. The Company Project enables the Developing the ‘Woori Happiness Sharing’ Product Package Aligned with the Government’s Policies for Spreading a Culture of Sharing In 2014, Woori Bank proactively developed the ‘Woori Happiness Sharing’ product pack- age aligned with the government’s policies for spreading a culture of sharing. The package integrates “high interest rates, tax reduction retention of all financial transactions of compa- and donation” into one, by providing high inter- nies and employees by providing a system for est rates depending on the amount of card use managing absenteeism and tardiness, as well as and tax reductions for small donations made. entrance and exit, including the services provid- Starting with the Ministry of Health and Welfare ed in alliance between Woori Card (ID employee in March 2014, the Bank signed business agree- card) and security companies (absenteeism and ments with a total of 62 institutions as of the end tardiness/entrance and exit control services). of 2014, including local governments and public Starting from May 2014, the project attracted institutions. As a result, we attracted 200,000 2,176 companies, 30,000 employee cards and installment savings accounts and 180,000 credit 50,000 salary accounts. Among the companies cards from public officials and office workers in enrolled, the bank paid for the rental costs of government agencies and public institutions, readers for absenteeism and tardiness/entrance thereby creating a stepping stone for vitalizing and exit services, to reduce the burden of costs transactions with local governments and public on companies, while also exploring new markets institutions that were formerly customers of other by attracting the employees of those companies banks. In the future, we will increase the number with salary accounts. Currently, the patent is of public officials and employees attracted from pending for BM, which will provide distinctive government agencies and public institutions by services as well as establish the infrastructure for remodeling products, while signing business security services for corporate customers in the agreements with new and potential customers in future. government agencies and public institutions. Strength in Our ValueS068 Adopting and Operating the Portable Branch Moving Devices PLANS For 2015 In 2015, despite the continuum of low growth Portable branches are cutting-edge banking and low interest rates and the highly competitive devices which create a branch environment anytime, anywhere via the LTE telecommunica- tion network, so that direct visits can be made business environment, the Consumer Banking Business Unit plans to concentrate on attract- ing new customers and expanding the existing to where customers are so as to offer the same customer base to maintain a stable growth mo- services as that of branches. The pilot pro- mentum. Through a variety of projects targeting gram began in April 2013, and now 50 portable youth culture in alliance with YG Entertainment, branches are up and running, as of the end of we plan to increase the number of new custom- 2014. They are likely to significantly contribute ers and attract new and existing customers as to business activities that help customers meet important customers through cross-selling. We their specific needs, and lead the rapidly chang- will also strive to secure profits by continuously ing financial market through continued expan- attracting the flow of funds with increases in settlement accounts for transfers of apartment management expenses, salaries and utility charges. sion. Optimizing of the Channel Network Amid the evolving financial environment, branches have been selected in districts with new growth potentials, such as ‘Innovation Cit- ies’ and industrial complexes, and low-yield and low-presence branches have been transferred or relocated. The Bank operates 993 branches, as of the end of 2014, including 29 new, 25 in- tegrated and 15 relocated branches, thereby es- tablishing a basis for creating profits through an efficient branch network. In order to strengthen non-face-to-face channels and provide better customer satisfaction, we set up 190 new un- manned automation systems, so as of the end of 2014, a total of 2,166 systems are available and 186 old ones were replaced. Woori Bank Annual Report 201404 iMproving reliaBility to SeCure i i i M P r o V N G r E L A B L t y t o S E C U r E i i in thebell risk Manager Awards Prize i i E r U C E S o t y t L B A L E r G N V o r P M i i i I N O T C E T O R P R E M U S N O C 7 7 0 T N E M E G A N A M L A C H T E I 5 7 0 T N E M E G A N A M K S R I 2 7 0 n o i t a m r o f n i l a n o s r e p f o e g a k a e l e h t g n i t n e v e r p n i d a e l e h t e k a t l l i w k n a B i r o o W y t i l i B a i l e t e s s a t s e b e h t i e d v o r p o t g n v i r t s o s a l i e l i h w , s t h g i r r e m u s n o c g n i t c e t o r p d n a t e s d n m i l i a c h t e g n o r t s a h t i w , s r e m o t s u c r u o o t i s e c v r e s t n e m e g a n a m l . s e e y o p m e g n o m a y t i r g e t n i d n a i n o i t a c n u m m o c r o f 072 riSk ManageMent Risk management has become essential to strengthen the competitiveness of financial institutions. Based on the know- how accumulated through past crises, Woori Bank adopted the Risk Adjusted Performance Measurement (RAPM) for the first time in the Korean banking sector in 2002, to establish advanced risk management systems by successfully introducing the Basel II and III protocols. Believing that profit sources are a result of effective risk management, Woori Bank will solidify its presence as a leading bank through implementing top-tier risk management. Prediction of default rate within one year after falling to ‘warning’ level (Unit: %) 15% 63 Prediction of insolvent borrowers 3 months in advance (Unit: %) 6.6% 83.1 rEViEW oF 2014 Aiming to become a clean bank through asset quality improvement, the Risk Management Unit carried out risk management policies by taking into consideration uncertain economic situations at home and abroad, including the tapering of quantitative easing (QE) in the U.S. and the in- crease in household debts and SME credit risk. In order to minimize asset quality deterioration preemptively and reflect credit portfolio policies in performance evaluation, we established new indicators of ‘improvement factors for high-net- worth assets’. We also upgraded the early warn- ing system for detecting potential insolvency at an earlier phase, to improve discrimination and efficiency. We periodically send out letters about major issues regarding on-site risk manage- ment and establish communication channels to listen to on-site opinions. Besides these, the total exposure management method, which sets limits and estimates the borrower’s financial statements based on future growth values, has received recognition domestically and interna- tionally to win the best prize at the 5th ‘thebell Risk Manager Awards’. Meanwhile, we received the best prize in the 5th ‘thebell Risk Manager Awards’ in recognition of excellence. Woori Bank Annual Report 2014073 Improving the Performance Management of RAPM Upgrading the Early Warning System for Insolvency Prevention Woori Bank has the best corporate banking ca- Since uncertainties continue in the financial envi- pacity in Korea. We strove to preemptively estab- ronment and profitability of enterprises are get- lish a risk management system for corporate as- ting worse, it is essential to develop a device for sets by learning from past crises. As part of our preventing insolvency risk at an earlier phase. efforts to minimize potential insolvency by improv- Therefore, Woori Bank established an early warn- ing portfolio structure, we established and oper- ing system for identifying signs of insolvency in ated new standards to evaluate branches, ac- corporate assets at an earlier time and managed cording to the level of improvements shown in appropriate post management systems. In 2014, high-net-worth assets. Sound evaluations are ex- indicators representing insolvency signs were re- pected to be given as the ratio of high-net-worth newed to reflect recent economic conditions, assets increase. As a result, high-net-worth assets thus improving the predictability and distinctive- have increased in 2014, as shown below. ness of the systems to a higher level. Moreover, With the purpose of preemptively managing in- dustries with potential risks, we have classified Korean industries according to the level of poten- tial risk. We also applied measures in different follow-up management systems for borrowers with signs of insolvency were developed, thus minimizing the further possibilities of deterioration into actual insolvency. stages and minimized the restriction of business, Aiming to enhance crisis response capabilities including tightening interest rate approval autho- rization and imposing expected losses. Mean- while, we raised the efficacy of control for high- against industries with potential risks, the number of industries subject to monitoring under indus- try-specific contingency plans was scaled up, risk industries to remove regulatory blind-spots. and countermeasure responses were strength- We will actively carry out high-net-worth asset- ened in each critical phase. As a result, efficient driven portfolio policies continuously in the future. and feasible responses can be better implement- ed in each phase. Category High net worth assets (EL ratio of less than 0.5%) Low net worth assets (EL ratio of exceeding 0.5%) As of the end of 2013 As of the end of June 2014 As of the end of September 2014 42.8 22.7 45.5 19.9 48.5 12.3 Strength in Our ValueS074 Establishing Communication Channels at the Business Site PLANS For 2015 In 2015, Woori Bank will actively enhance the In order to establish and apply efficient risk bank’s values by improving the portfolio structure management policies, it is essential to commu- of high-net-worth assets to respond promptly nicate with the business site. As such, the Risk to uncertainties arising from environmental Management Department sends out letters with changes. Accordingly, we will establish on-site easy explanations about major risk manage- oriented risk management systems by continu- ment issues that are associated with branches, ously communicating with the business site, including enterprise credit evaluation and Risk such as receiving feedback about credit evalu- Adjusted Performance Measurement (RAPM), ation models, providing operational risk analysis and actively reflects the feedback from the site for each branch and making regular visits to into risk management policies. high-risk branches. We will also increase the KPI scores to increase high-net-worth assets, while strengthening the regulation on high-risk assets to improve asset quality. As such, we will comply with the optimal Liquidity Coverage Ratio (LCR) by taking into consideration profitability and capital adequacy, according to the supervisory authorities’ implementation of the Basel III liquid- ity coverage ratio (LCR). Receiving the Best Prize in the 5th ‘thebell Risk Manager Awards’ Woori Bank was the first in the banking sector to actually adopt and apply a system that pro- vides exposure limits based on future cash flow (total exposure limit management). This provides exposure limits to each enterprise by looking at the company’s future growth values (cash flows from operating activities) as their future repay- ment, while countermeasure plans are provided systematically for exceeding the limit, including notification to related credit analysis and approv- al departments, receiving of repayment plans, review of whether or not repayment plans have been carried out and reported to the manage- ment. For the total exposure management sys- tem, Woori Bank won the Best Prize of the ‘2014 thebell Risk Manager Awards’ (October 30, 2014, hosted by: Moneytoday thebell), which is the most prestigious award in risk management for the Bank’s excellence in this field. Woori Bank Annual Report 2014075 ethiCal ManageMent In order to ensure transparent and rational implementation of duties, Woori Bank is aiming to become a reliable bank for customers through differentiated ethical management systems and ethical training programs for employees. We also devised the ‘Woori Code of Ethics’, which are the principles involved in making proper decisions or acting correctly, and all employees are required to abide by these principles, along with the ‘Fair Trade Compliance Program’. As a result, Woori Bank has created a corporate culture of compliance where ethical management and fair trade are implemented through customer protection and upgraded services. rEViEW oF 2014 In 2014, Woori Bank strove to ensure that employees could recognize and practice the concept of ethical management. They were en- couraged to apply the ‘Code of Ethics’ through continued internal control and intensified em- ployee training. An event titled ‘My Commitment to Compliance and Sound Business’ took place to intensify the awareness on practicing princi- ple-based business through legal compliance, preventing financial incidents and bolstering the awareness of legal compliance. An award cere- mony for outstanding employees in ethical man- agement and compliance monitoring was held to raise awareness of ethical compliance and boost morale through incentives. Moreover, the Bank operated the ‘119 (the Korean version of 911) Legal Services’, a legal portal system that Strength in Our ValueSissues governed by Compliance Dept. 1. Compliance / Ethical 2. Legal advisory 3. Anti-Money Laundering 4. Monitoring 5. Litigation 076 provides help with resolving legal difficulties that arise on-site, and published a compliance guide- line according to duties, so that ethical manage- board available through legal advisory services, to be immediately reflected in the Bank’s sys- tems. This enables strengthened utilization of ment can be further solidified in the Bank. regulations, while making them practical and conducive to work. Practicing the Code of Ethics Various programs have been developed to raise awareness and keep actions in line with the Code of Ethics among employees. By facilitating Preventing Incomplete Sales in Advance through Financial Incident Prevention and Best Practice Training a whistle-blowing system and protecting whistle First, we strengthened the review of clauses and blowers, as well as reporting on money received new products in advance of the perspective of and entertainment exchanges, Woori Bank protecting the rights of financial consumers to practices ethical management and prevents re- lated incidents from happening again. In order prevent incomplete sales, while continuously conducting training for all employees by provid- to effectively spread ethical management and ing processes and reviews of compliance in establish business management following such addition to product transparency. We also ap- principles, we have monitoring that is based on pointed a Head Auditing Officer to conduct a diverse channels, while the ‘On-site Ethical Man- monthly review of legal compliance matters at all agement Compliance’, the ‘Ethical Management branches as a preventive measure and provide Self-check’ and the ‘Check & Clean Day’ were internal control training on best practices, so that held on a monthly basis to strengthen the ethical we can prevent incomplete sales and customer mindset of employees. We also prevented unfair complaints from arising. Second, we distributed trade actions and established a sound culture the ‘On-site Ethical Management Compliance’, of signing contracts for our partner companies a monthly training magazine for practicing ethi- through a Clean Contract System. cal management, to all branches, and strove to Providing Site-oriented Legal Advisory Services raise awareness of ethical management by pub- lishing the ‘Ethical Compliance Lessons Learned From Best Practices’ every quarter. In order to eliminate possible legal risks, we have extended active support for field management. PLANS For 2015 With the 119 (the Korean version of 911) Legal In 2015, Woori Bank will provide proactive and Services in place, Woori Bank provides legal assistance from in-house lawyers for any em- ployee requiring legal help in civic, criminal and permanent compliance monitoring and estab- lish prompt and convenient profit-oriented legal services and an anti-money laundering man- household matters. Also, we receive employee agement system, thereby reestablishing and suggestionsfor improvement through a bulletin securing its compliance monitoring system. This enables the Bank to reaffirm its position as a leading bank without incidents and be the No. 1 bank in compliance. Moreover, we will contrib- ute to social development by fulfilling our social responsibilities for all stakeholders, including customers, shareholders, employees, and the nation and society, based on our trustworthy ethical finance. Woori Bank Annual Report 2014077 ConSuMer proteCtion Woori Bank’s core values are putting customer’s happiness first, pioneering and challenging itself to create a better future, leading the way in creating a healthy financial order and fostering human resources. Among our many values, we put ‘customer happiness’ at the top of the agenda. Based on this philosophy, Woori Bank was the first among Korean financial institutions to establish a Consumer Protection Center, an independent unit formed exclusively to protect consumers, where 37 persons were hired as part of the largest exclusive workforce in the industry. By actively carrying out consumer protection activities and fulfilling corporate social responsibilities, we have secured our position as the leading Korean bank in consumer protection. rEViEW oF 2014 The Consumer Protection Center establishes the basic policies for consumer protection and devises action plans, while also preventing con- sumer damage claims to enhance consumer rights by exploring and improving unreasonable practices. We also promptly and fairly handle damage claims by receiving complaints from customers. Various activities are being imple- mented in terms of requests for help and com- plaints received from branches, such as consult- ing with relevant divisions for resolution. Strengthening Financial Consumer Protection and Promoting a Culture of Protection In 2014, we improved customer convenience through the improvement of unreasonable prac- tices and advanced financial consumer protec- tion, removing unnecessary waste factors by enhancing work efficiency and provided on-site Strength in Our ValueS078 support to customers and employees. In order Care System’. Woori Bank plans to promote to promote a customer-oriented mindset for em- ployees, we enacted the ‘Financial Consumer Protection Charter’, which is the basis of Woori such a culture in the financial environment, so that consumer convenience and rights are en- hanced through continuous implementation and Bank’s policy direction for financial consumer improvement of consumer-oriented systems. protection. We protected consumer rights, devel- oped products and sold them, resolved damage Woori Bank’s Customer Information Protection claims and developed the professional capabilities For the purpose of strengthening customer infor- of employees on-site. We also strengthened financial consumer pro- tection by adopting a prior consultation system to reflect consumer views starting from the prod- mation protection in 2014, Woori Bank promoted the Customer Information Security Division, to strengthen the security of management and tech- nologies for consumer information protection and to make the utmost effort to prevent the leakage of uct development stage, promptly resolved the customer information. damage claims made, and minimized incomplete sales by establishing a product sales process. Developing Active Consumer Protection Activities Customer happiness managers standing at the forefront of consumer protection on-site were or- ganized under the name of ‘Cham (Responsible) Forum’. They held training to prevent complaints • Acquisition of the ISMS (Information Security Man- agement System) certificate for the Korea Internet Security Agency’s information protection manage- ment system under the Ministry of Science, ICT and Future Planning • Establishment of customer information leakage prevention system (DLP: Data Loss Prevention) • Prevention of the use of general portable storage devices by introducing the security USB and es- tablishment of approval system for documents by visiting 287 branches. Moreover, measures taken outside were taken so that prior reporting of complaints and compensation for customer damage claims • Implementation of the real-name system with mask- ing(*) so that personal (customer) information can- were improved, enabling customer complaints not be identified when printed out from the personal to be resolved promptly and damages to be computer compensated adequately. These programs mini- • Establishment of a system that prevents fraudulent mized customer inconveniences and allowed us transfers through internet banking services to stay in line with the fundamentals of consumer • Provision of information security training programs protection. twice a year for all employees PLANS For 2015 In 2015, in order to respond to the policy direc- tion of ‘creating a consumer-oriented financial environment’, we plan to actively carry out projects that aim to ‘strengthen financial con- sumer protection’. By adopting the ‘Complaint Prevention ABC System’ as the standard for preventing complaints on-site and establishing a support and cooperation system, we will resolve consumer complaints in advance. We also plan to create a financial environment that values the opinions of consumers by strengthening monitoring before and after the development of products by operating the new ‘Woori Product Woori Bank Annual Report 201405 Building integrity to Share i B U L D N G i i i N t E G r t y t o S H A r E total Number of Employees 15,000 persons E r A H S o t y t r G E t N i i i G N D L U B i I I I I S E T V T C A N O T U B R T N O C L A C O S I I 2 8 0 I T D E R C O R C M E L M S I I I R O O W 4 8 0 I I N O T C A F S T A S E E Y O L P M E 6 8 0 s d r a w o t k r o w l l i w k n a b i r o o W r o f y t i l i i b a n a t s u s g n i t s a l r e v e g n i t o m o r p y b s r e m o t s u c r u o e h t n i s s e n d e t r a e h - m r a w h g u o r h t r o t c e s l i a c n a n fi . t n e m n o r i v n e e k i l - y l i m a f a n i y t i r g e t n i g n k r o w s e e y o p m e l r u o 082 SoCial ContriBution aCtivitieS During the past 116 years, despite colonialism and economic troubles, as a native bank of Korea, Woori Bank has practiced the spirit of sharing. At a time when social roles and responsibilities in the banking sector are spotlighted, humanity, happiness and hopefulness, as our three missions, will be at the core of everything we do. Diverse social contribution activities unfold under the goals to realize the vision of ‘sharing love and sharing in finance fosters dreams and hopes’. SoCiAL CoNtriBUtioN ACtiVitiES oF Woori BANK ‘Woori Happy Society’ Program To sponsor the underprivileged in local commu- nities, Woori Bank practices the ‘Woori Happy Society’ program. It is a regular and continuous community-focused volunteering program that creates sisterly ties with social welfare centers in community and community childcare centers. Besides such hands-on volunteering activities, children having difficulties in participating in out- door activities during summer and winter holi- days are invited to take part in skating competi- tions and summer camps. In January, a skating competition was held for community childcare centers in Seoul Plaza, run by Woori Bank in front of City Hall. Twice every year, we operate the ‘Woori Dream Tree Scholarship’ system for children from community childcare centers. In 2014, around 320 children received scholar- ships. Also, we regularly support 87 community childcare centers and 110 social welfare centers through our head office. ‘One Company, One Village’ Sponsorship Program Woori Bank conducts the ‘One Company, One Village’ sponsorship program, which encour- ages active exchanges to achieve shared growth between urban and rural regions. The program marked its 10th anniversary in April 2015 by supporting ‘Yubyeolnan (Unusual/Peculiar) Vil- lage’ in Anseong City, in Korea’s Gyeonggi Prov- ince. We offer support in the form of volunteering Woori Bank Annual Report 2014083 during harvests, creating markets for the direct quire emergency relief, along with the treatment sales of agricultural products, rural village experi- of nutritional deficiency. ences for our employees and customers, village refurbishment and income-generating activities in rural villages. We also forged the ‘One Com- pany, One Fishing Village’ program with Mong- san-ri in South Chungcheong Province, and the ‘One Company, One Mountain’ program with Namsan Mountain in Seoul for environmental preservation and natural protection. To pay trib- ute to our heritage, we have signed a contract to protect Hongyuneung under the ‘One Company, One Cultural Property’ program. Hongyuneung is nationalhistoric site No. 207 and a UNESCO- designated World Cultural Heritage site. It is the tomb of Korea’s Emperor Gojong, and also of King Sunjong, who paved the way for the Daehan Cheonil Bank, the forerunner of Woori Bank, to be established, sponsoring it with im- Love Blood Donation Event Since 2006, Woori Bank has been holding the ‘Love Blood Donation Campaign’ to help out in July and August when there is a lack of blood donations, with the 9th anniversary marked in 2014. During the campaign period, employ- ees voluntarily held blood donation relays at all branches, including the head office, Woori Finance Sangam Center and Woori W Tower. In particular, all of the employees who participated in the blood donation gave their blood donation certificates to the children of low-income house- holds, suffering from rare diseases such as leu- kemia and childhood cancer. perial funds so that a national bank could take root. We regularly conduct activities to protect Accumulation of the ‘Woori Love Fund’ and the ‘Woori Children’s Love Fund’ Hongyuneung, and include a tribute ceremony as part of our new recruiting orientation, so as to enhance their appreciation of company history. During every New Year’s kick-off ceremony, the CEO and the management take part in a com- mitment event to practice ‘Cham (responsible) Keumyung (finance)’, to pay tribute to the de- ceased there. Employees’ Volunteer Activities Together with Families As part of social contribution programs, we also invite the families of employees to take part in volunteering activities. Our employees and their families visit the rural village that has a sisterly tie through the ‘One Company, One Village’ program, where they weed sweet potato fields, while also doing volunteering work by reproduc- ing the scene of the King’s royal visit during the Choseon Dynasty at Changdeokgung Palace. In 2014, we held the Hope T(-shirt) Drawing Cam- paign together with the Korea Disaster Relief As- sociation. Through the campaign, our employ- ees made the Hope T(-shirt) with their children during the summer holidays to deliver them to the children of climate-disaster refugees who re- Woori Bank’s employees are actively participat- ing in promoting the culture of donation. They voluntarily accumulate part of their monthly salaries in the ‘Woori Love Fund’ and the ‘Woori Children’s Love Fund’. By utilizing the ‘Woori Love Fund’, we implemented the Together Woori Love Support System, which explores and sup- ports 120 outstanding social contribution pro- grams annually. As for the ‘Woori Children’s Love Fund’, it practices the love of our employees through social contribution activities for children, such as helping out poorly-fed children. Starting from October 2010, we opened the ‘Woori Love e-Sharing’ where customers can make dona- tions when they make transfers through internet banking, to take the lead in promoting the cul- ture of small donations. In order to establish the corporate culture of ‘Sharing and Volunteering’, Woori Bank plans to continuously carry out diverse social contribution activities. Moreover, we will directly and continu- ously conduct various activities for sharing, to ensure they are not a one-time event. Strength in Our ValueS084 Woori SMile MiCroCredit Woori Bank is engaged in Microcredit to spearhead the efforts in practicing socially responsible banking by supporting the financially struggling and socially vulnerable and neglected customers. In 2009, Woori Bank led in the contribution of KRW 10 billion per year, totaling KRW 50 billion over five years, together with WFH and its affiliates, to establish and operate the Woori Microcredit Foundation. The foundation appointed famous people from the religious, academic and social welfare circles as outside directors, ensuring the fairness of the project and the support of citizens. There are nine branches across the nation with 28 employees. ACtiVE iMPLEMENtAtioN oF SoCiAL rESPoNSiBiLity FiNANCE Major Performance of Microcredit Foundation By extending support to the financially vulner- able, the socially neglected and those who lack financial access, we extended Microcredit worth KRW 379 billion in 2013, leading the way in practicing socially responsible financing. Mi- crocredit services were presented with several products: ‘Woori New Hope Seed’ for low-credit low-income customers; and ‘Transit Loan’, whereby citizens suffering from high-interest rate loans could make the transition to low-interest loans. Through Microcredit services, Woori Bank ex- tended approximately KRW 74.2 billion of credit in 5,601 cases through 2014. In 2014, pursuing the business goal of ‘Microcredit that makes citi- zens smile’, we achieved a tremendous increase in the Microcredit extensions, by approaching customers and developing customized prod- ucts. Woori Bank extended approximately KRW 21.2 billion of credit in 1,733 cases through 2014 (5,601 cases worth KRW 74.2 billion in to- tal). It was not a mere voluntary activity: support has been given so that recipients can become self-sufficient through consulting and microcredit events in the form of visiting, consulting and ex- tending a helping hand on-site. Woori Bank Annual Report 2014085 Woori Smile Microcredit’s Major Figures (Unit: cases) 5,601 74.2 (Unit: KRW billion) Microcredit Foundation’s Key Products • Business Start-up Loan: A loan for small-scale registered entrepreneurs to start a new business • Working Capital Loan: A loan for individual en- trepreneurs (who have already been in business for over six months) to purchase products, raw materials, etc. • Loan for Facility Improvement Funding: A loan for individual entrepreneurs (who have already been in business for over six months) to im- prove the facility of business sites. Microcredit that Helps Achieve Self-Sufficiency We plan to expand support by exploring low- income industries with high vulnerability and sign agreements with traditional market merchant councils and associations. Meanwhile, we will secure exclusive channels for better accessibility to Microcredit. In addition, we will take the lead in promoting and sharing the genuine role and purpose of Microcredit, together with society, and spread these roles and directions by explor- ing and facilitating best practices, to raise confi- • Sunshine Loans for University Students and dence among recipients. Young People: A loan for emergency funding for youngsters and university students who are under 29 years old (under 31 years old for men who served in the military). Woori Bank will establish a foundation for the self-sufficiency of low-credit low-income people through Microcredit services, ensuring the stabi- lization of livelihoods and improving their welfare. • Loan for Deposit on Rental Housing: A loan for people residing (or planning to reside) at national rental housing (Land & Housing Cor- poration) • Loan for Successful Employment: A loan for successful job seeker though successful em- ployment package (Ministry of Employment and Labor) Strength in Our ValueS086 eMployee SatiSfaCtion Woori Bank believes that a work life where employees are happy and satisfied is the foundation for providing the best services to customers. As such, we launched the Employee Satisfaction Center in 2007, developing and operating various programs to enhance our employees’ satisfaction in their workplace. As a result, we continuously improved employee satisfaction levels at work, so that we could become a vibrant and happy bank with the mindset that we can make our customers happy based on owner awareness. FACiLitAtiNG ProGrAMS For ENHANCiNG EMPLoyEES’ SAtiSFACtioN LEVEL The Project to Raise Employee Energy We operated dynamic and interesting programs to improve employee satisfaction. By supporting not only workshops where employees partici- pated, but also various pastime activities, we catered to the cultural needs of our employees and endeavored to assist them in the forma- tion of networks. The ‘Woori Family Energy Up’ program was designed to facilitate the psycho- logical stability of individuals, which has been positively acclaimed by employees, and also to induce improvement in family relations. The pro- gram was to help improve communication and increase excitement among employees. Efforts are being made to practice Woori Bank’s belief that happiness within employees’ families drives the Bank’s competitiveness. Travel Sketch Programs with Themes Since July 2011, travel sketch programs have been conducted as a representative family care program, based on the concept that ‘employees’ satisfaction comes from a happy family’. On the fourth Saturday of every month, we held a nature experience program for each season where our employees have fun with their children. Starting with the ice fishing and strawberry picking expe- rience programs held in January 2014, we held various different programs 11 times throughout the year, which ended with snow sledging in De- cember. These programs have high participation Woori Bank Annual Report 2014087 rates from employees every month and many of our employees look forward to them. By spend- ing happy time with their families, our employees reflect on the importance of family, something that might have been overlooked due to con- centrating on work. Free Rental of the Wedding Hall at Head Office’s Auditorium Woori Bank provides free rental of the wedding hall at the head office’s auditorium to our em- ployees. Also, we provide a high-spec waiting room for the bride and the pyebaek (a traditional ceremony to pay respect to the newly-wedded couple’s family) room through redecoration, and also provide the CEO’s vehicle as the wed- ding car. Based on this support, a total of 179 Present Status of Support in 2014 In order to increase concentration on work and facilitate a corporate culture by resolving various psychological problems involving our employ- ees’ and their children and families, we help to make reservations and pay for expenses for psychological and legal issues associated with employees and their families. Besides external consultation services, we also have psychologi- cal specialist at the Bank who carry out psycho- logical tests, give psychological consultations and hold small-scale lectures at branches. Also, we seek ways to lower our employees’ stress levels by providing daily meditation and herb healing experiences once in the first half of the year and again in the second half of the year. couples got married at the head office’s wedding ‘Great Fun! Woori Tong Tong Craft Studio’ hall between 2012 and 2013, while 165 couples got married in 2014. For 2015, we have already received reservations for over 100 weddings, which shows its popularity among our employ- ees. The free rental of the wedding hall at the head office’s auditorium not only reduces wed- ding costs for staff, but also enhances their pride in the Bank. Team spirit boosting programs were strength- ened this time on top of the existing survival game, which included rafting, an ATV experience and walking on beautiful boulevards. It is a pro- gram that has been running for three years, and a total of about 9,000 participants have joined in the iconic fun program that has transformed the corporate culture in workshops at Woori Bank. By improving communication among employees through fun workshops, we have created syn- ergies in cooperation between employees and enhanced work efficiency through this represen- tative fun-filled program. Strength in Our ValueS088 ‘Art is Tasteful, Pleasing Five Senses’ A Healthy and Vibrant Corporate Culture This is a cultural program to enable employees Woori Bank promoted systematic and continu- and their families to enjoy a richer, more leisurely ous health management of our employees by life by giving them a cultural appreciation of art, conducting comprehensive health check-up and musicals and classical music and satisfying their blood checks once every year. We also support craving for a cultural life. Between 2012 and the use of condominium across the nation, so 2014, we received a great response from our em- that employees can enjoy lots of leisure time to- ployees with collective viewing of the opera Little gether with their families. Prince and the musical Wicked. Employees can now enjoy a more vibrant and interesting work life, thanks to various cultural programs that pro- vide a convenient and satisfying cultural life. PC-Shutdown for Work Hour Normalization Woori Daycare Center Woori Bank complies with the government’s policies for overcoming low birth rates, by ac- tively supporting our employees who are work- ing moms through Woori Daycare Center’s In order to improve the working conditions with Happiness Branch (located in Mapo-gu, Seoul) lots of night overtime at the Bank, we intro- and Sarang Branch (located in Seongdong-gu, duced the Working Hour Normalization System Seoul). In the future, we will not only create a in 2013, and strove to establish the system in corporate culture that actively promotes child- 2014. By setting the PC-Shutdown time to 7 birth by establishing additional daycare centers, p.m., employees have fun after work and spend but will also work towards reducing the burden more time at home. There is improvement in of raising children for working moms. work efficiency and higher concentration at the workplace due to a lack of unnecessary night overtime. PLANS AFtEr 2015 Woori Bank will do its utmost to make sure all of our employees are happy and also bring happi- ness to our customers. Woori Bank Annual Report 201406 finanCial revieW i i F N A N C A L r E V E W i i i s s y l a n a D n a n o s s u c s D s ’ t n e M e g a n a M i 1 9 0 t R o P e R ’ i s R o t D u a t n e D n e P e D n i 9 9 0 i w e v e R l a c n a n F i i MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 stRength in ouR Values 091 091 This Management Discussion & Analysis (MD&A) and accompanying financial statements comply with Korean International Financial Reporting Standards (“K-IFRS” consolidated financial statements). On November 1, 2014, Woori Bank merged with its parent company, Woori Finance Holdings(WFH). The merger between Woori Bank and Woori Finance Holdings is a business combination under common control and it did not result in any change of economic substance. Therefore, the comparative consolidated financial statements presented are the consolidated financial statements of Woori Finance Holdings as of and for the year ending December 31, 2013. The term ‘the Bank’, as used in this MD&A, refers to Woori Bank, unless otherwise indicated. Summary of Management Performance As of May 1, 2014, the Bank proceeded with the spin-off of its two Regional Banks (Kwangju Bank and Kyongnam Bank) in accordance with the government’s privatization plan. Also, the sale process was completed in consecutive order between March and June of 2014, with the sale of its six Non- Banks (Woori Investment & Securities, Woori Aviva Life Insurance, Woori FG Savings Bank, Woori Asset Management, Woori Financial, Woori F&I). On November 1, 2014, the Bank merged with Woori Finance Holdings. The Bank’s total assets decreased from KRW 340,689 billion (2013-end) to KRW 270,157 billion (2014-end). However, this was primarily due to the spin-off of two Regional Banks and the sale of six Non-Banks. Nevertheless, when excluding assets(or liabilities) from the subsidiaries that were reclassified into disposal group held for sale or for distribution to owners as of December 31, 2013, the Bank has secured strong future growth by increasing approximately 15 trillion in total assets year on year. The Bank’s net income (attributable to controlling interests) in 2014 reached KRW 1,214 billion up KRW 1,751 billion from the previous year. This was partly due to the impact of the reversal of deferred tax liability recognized in 2013 (from the spin-off of two Regional Banks) as a result of the amendment of the Tax Reduction and Exemption Control Act of Korea (May 14, 2014). However, the main reason of net income increase originated from the huge decrease in bad debts expense compared to the previous year. The continuum of low domestic consumption and low growth in the global market led to a continuous decrease of Net Interest Margin (NIM), so quantitative growth could not lead to maximized operating income. However, asset quality indicators, such as NPL ratio and delinquency rates, had greatly improved from the previous year. Externally, 2014 was a memorable year for the Bank by merging with its holding company according to the scheduled privatization process, after selling off two Regional Banks and six Non-Banks. Internally, the Bank focused on increasing the portion of high net worth assets and improving its soundness. To ensure sustainable growth under the current trends of low growth, low interest rates and low margins, the Bank will make every effort to achieve stable internal growth and improve asset quality by diversifying revenue streams. Strength in Our ValueS092 MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Management Performance Summarized Consolidated Income Statement (Unit: KRW Billion) Operating incomes Net interest incomes Net fees and commissions income Impairment losses due to credit loss General and administrative expenses Others Non-operating incomes (losses) Net income before income tax expense Income tax expenses Net income from continuing operations Net Income from discontinued operations Net incomes (Losses) Net incomes (losses) attributable to owners Net incomes (losses) attributable to non-controlling interests 2014 898 4,493 917 -1,097 -2,959 -456 -63 834 288 546 662 1,208 1,214 -6 2013 240 4,492 926 -2,277 -2,902 1 48 287 35 252 -966 -713 -537 -176 Amount 658 1 -9 1,180 56 -457 -111 548 253 295 1,627 1,922 1,751 170 Change (%) 274.1 0 -1 -51.8 1.9 -45700 -231.3 190.3 722.9 117.1 -168.4 -269.5 -326.1 -96.5 In 2014, the Bank’s net income (attributable to the owners) increased KRW 1,751 billion to KRW 1,214 billion up from the previous year’s loss of KRW 537 billion. Despite a cut in Net Interest Margin (NIM), amid the continuum of the low growth environment, the Net Interest Income (NII) increased slightly compared to the previous year by achieving adequate asset growth and expanding the Bank’s credit card business. However, the net fees and commission income slightly dropped due to the increase in payment of credit card fees generated by strengthening the Bank’s credit card business. Impairment losses due to credit loss decreased from KRW 2,277 billion to KRW 1,097 billion; a drop of approximately 51.8% from the previous year. On the other hand, a significant increase was realized in net income with KRW 778 billion for net income (loss) from discontinued operations. This included the reversal of income taxes involving the spin-off of two Regional Banks. Having completed the merger with its holding company to enhance efficiency, the Bank will continuously improve mid to long term profitability by improving cost efficiency and minimizing the increase of allowances for credit losses. Woori Bank Annual Report 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Interest Income and Expenses (Unit: KRW Billion) Interest incomes Interest on loans Interest on securities Interest of other receivables Interest expenses Interest on deposits due to customers Interest on debentures Interest on borrowings Interest expense on others Net interest incomes 2014 9,211 8,183 873 155 4,718 3,451 885 252 130 4,493 2013 9,493 8,350 969 174 5,001 3,650 960 254 137 4,492 Amount -282 -167 -96 -19 -283 -199 -75 -2 -7 1 093 Change (%) -3.0 -2.0 -9.9 -10.9 -5.7 -5.5 -7.8 -0.8 -5.1 0 The Bank’s loans increased KRW 11,234 billion over the previous year, but due to a decreasing trend of the market interest rate, interest on loans decreased KRW 167 billion. Also, interest expenses decreased KRW 283 billion due to the reduction of purchasing costs, including the increase in low cost funding and the repayment of high interest borrowings and debentures. Overall, the income from interests was similar to the previous year at KRW 4,493 billion. The Bank will improve the efficiency of funding structure by increasing low interest deposits and debentures while implementing other profit driven funding strategies to promote stable mid-to long-term growth. Impairment Losses Due to Credit Loss (Unit: KRW Billion) Provision due to credit loss Reversal of provision on guarantee Reversal of provision on loan commitment Total 2014 1,116 14 33 1,097 2013 2,199 93 15 2,277 Amount -1,083 -79 18 -1,180 Change (%) -49.2 -84.9 120.1 -51.8 The Bank’s provision, due to credit loss in 2013, stood at KRW 2,199 billion due to large amounts of NPLs caused by the economic downturn of shipbuilding and construction industries. However, the amount decreased KRW 1,083 billion to KRW 1,116 billion over the previous year, which is attributable to strengthening pre-emptive risk management in preventing additional generation of NPLs and effectively managing these exposures after loan execution. Exposures on major insolvent enterprises that occurred from the previous period had mostly been actualized. Furthermore, efforts made to prevent executing additional overdue or to be problematic loans and receivables, as well as effectively managing current non-performing assets through strengthened risk management, are expected to continuously reduce the Bank’s bad debts expense in the future. Strength in Our ValueS094 MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 General and Administrative Expenses (Unit: KRW Billion) Employee benefits Short term employee benefits Retirement benefits and redundancy payments Depreciation General and administrative expenses Rent Service charges Others Total 2014 1,749 1,557 192 224 986 266 215 505 2013 1,714 1,533 181 233 955 231 206 518 2,959 2,902 Amount 35 24 11 -9 31 35 9 -13 57 Change (%) 2.0 1.6 6.1 -3.9 3.2 15.2 4.3 -2.5 2.0 In 2014, the Bank’s general and administrative expenses increased 2.0% year on year or increased KRW 57 billion to reach KRW 2,959 billion. Employee benefits increased KRW 35 billion, but when excluding the cost of KRW 15 billion involving the costs of voluntary resignation, the actual amount is KRW 20 billion. Utmost efforts will be implemented to manage adequate general and administrative expenses by maintaining a conservative level of personnel expenses, continuing to cut down other expenses, and improving efficiencies in total bank management. Non-operating Incomes (Expenses) (Unit: KRW Billion) Non-operating incomes Share of profits (losses) of joint ventures and associates Gains (Losses) on disposal of premises and equipment and other assets Rental fee income Other non-operating incomes Non-operating expenses Donations Depreciation on investment properties Other non-operating expenses Total non-operating incomes 2014 171 37 33 8 93 234 53 4 177 -63 2013 174 30 29 6 109 126 52 4 70 48 Amount -3 7 4 2 -16 108 1 0 107 -111 Change (%) -1.7 23.3 13.8 33.3 -14.7 85.7 1.9 0 152.9 -231.3 The Bank’s non-operating incomes decreased KRW 111 billion year-on-year. This was due to the increase of other non-operating expenses originating from donation and etc. . Woori Bank Annual Report 2014MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Financial Position Summarized Consolidated Financial Statements (Unit: KRW Billion) Assets Cash and cash equivalents Securities Loans and receivables Investments in joint ventures and associates Disposal group held for sale/Disposal group held for distribution to owners Other assets Liabilities Deposits due to customers Borrowings Debentures Liabilities directly associated with disposal group held for sale/ Liabilities directly associated with disposal group held for distri- bution to owners Other liabilities Total equity 2014 270,157 5,965 36,408 223,370 648 - 3,766 252,064 188,516 17,707 24,796 - 21,045 18,093 2013 340,689 5,478 33,930 211,912 618 84,996 3,755 317,813 175,323 18,231 21,677 78,930 23,652 22,876 Amount -70,532 487 2,478 11,458 30 -84,996 11 -65,749 13,193 -524 3,119 -78,930 -2,607 -4,783 095 Change (%) -20.7 8.9 7.3 5.4 4.9 -100.0 0.29 -20.7 7.5 -2.9 14.4 -100.0 -11.0 -20.9 As of 2014-end, the Bank’s total assets and total liabilities decreased to KRW 270,157 billion and KRW 252,064 billion down KRW 70,532 billion and KRW 65,749 billion, respectively. However, taking into consideration that the amounts dropped due to the sale of six Non-Banks(KRW 84,996 billion) and the spin- off of two Regional Banks(KRW 78,930 billion), the Bank’s assets actually increased by about KRW 14,464 billion and the Bank’s liabilities increased KRW 13,180 billion. Total loans increased from KRW 190,699 billion to KRW 204,818 billion, an increase of KRW 14,119 billion year on year. As a result of lowering interest rates and easing government regulations, household loans increased by KRW 8,610 billion, and there was an increase in new loans for high net worth SMEs as well. Deposits due to customers increased KRW 13,193 billion from the previous year driven by stable growth of time deposits, while debentures increased KRW 3,119 billion from the previous year. Total equity recorded KRW 18,093 billion, which was down KRW 4,783 from the previous year. Despite certain positive factors, like the net income of KRW 1,208 billion achieved in 2014, decrease in equity inevitably occurred due to the spin-off of two Regional Banks (KRW 3,352 billion) and the selling of six Non-Banks(KRW 1,900 billion). Strength in Our ValueS096 MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Loans/Deposits Due to Customers (Unit: KRW Billion) Loans Loans in Local Currency Loans in Foreign Currencies Domestic banker‘s letter of credit Credit card accounts Bills Bought in Foreign Currencies Other loans (Provision for loan losses) Deposits due to customers Deposits in local currency Certificate of deposits Other Deposits Deposits in foreign currencies (Present value discount) 2014 204,818 167,261 11,281 5,712 5,113 5,552 12,508 -2,609 188,516 172,597 740 1,281 13,902 -5 2013 190,699 156,027 9,996 4,958 4,209 4,235 14,611 -3,337 175,323 158,568 3,297 1,236 12,264 -42 Amount 14,119 11,234 1,285 754 904 1,317 -2,103 728 13,193 14,029 -2,557 45 1,638 37 Change (%) 7.4 7.2 12.9 15.2 21.5 31.1 -14.4 -21.8 7.5 8.8 -77.5 3.6 13.4 -88.1 The Bank’s loans in KRW in 2014 went up KRW 11,234 billion from the previous year. This was mainly due to scale-up of new loans to high net worth SMEs and public agencies, as well as a huge increase in private housing loans resulting from the government’s deregulation and falling interest rates. As a result of efforts made in increasing businesses involving corporate and institutional clients, the Bank recorded a high growth rate with an annual average of 9.4% for deposits during the past several years. Deposits due to customers increased KRW 13,193 billion from the previous year. This is attributable to funding through time deposits in KRW, which increased KRW 15,566 billion from the previous year due to the increase in customers’ demand for safe assets and aligning with the Bank’s management of loan-deposit ratio and liquidity. The Bank will establish a more stable funding structure by reducing the ratio of short-term deposits due to customers, or in other words, reducing certificate of deposits, etc. Woori Bank Annual Report 2014MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 097 Asset Quality (Unit: KRW Billion, % ,%p) Non-Performing Loan (NPL) Ratio Delinquency Rate NPL Coverage Ratio (A/B) Loan Loss Provision & Capital Reserve for Credit Loss : Classified as NPL (A) NPL (B) * Note: Separate financial statements 2014 2.10 0.88 97.16 3,907 4,021 2013 2.99 1.14 82.27 4,408 5,359 Change -0.89 -0.26 14.89 -501 -1,338 As a result of efforts made in reducing non-performing assets and improving asset quality, key indicators for asset quality, including NPL ratio and delinquency rate, dropped 0.89%p and 0.26%p, respectively, to record 2.10% and 0.88% each with a huge improvement made from the previous year. The balance of NPL was KRW 4,021 billion, down KRW 1,338 billion from the previous year, while the NPL coverage ratio significantly improved from the previous year from 82.27% to 97.16%. The Bank will greatly improve its asset quality in the future through proactive measures taken, such as continuously decreasing the exposure to risk-driven cyclical industries and insolvent enterprises and moreover, preventing the inflow of to-be-problematic loans in the future. Capital Adequacy (Unit: KRW Billion, % ,%p) BIS Equity Capital Risk Weighted Assets (RWA) BIS Ratio Tier 1 Capital Ratio 2014 20,857 146,323 14.25 10.69 2013 20,382 131,313 15.52 12.68 Change 475 15,010 -1.27 -1.99 The BIS equity capital increased KRW 475 billion from the previous year. Although there was a spin-off of two Regional Banks, Woori Bank issued Basel III compliant US$ 1 billion of subordinated debt in foreign currency(as the 1st Bank in Korea to do so) as well as issuing KRW 160 billion of hybrid securities in domestic currency. On the other hand, the risk weighted assets increased KRW 15,010 billion due to incorporating subsidiaries such as Woori Card, Woori Investment Bank, and etc. resulting from the merger with Woori Finance Holdings(WFH). The merger with WFH and the inclusion of Woori Card, Woori Investment Bank, and others resulted in an inevitable drop of the BIS ratio by 1.27% to 14.25%. The Bank will make every effort to improve the BIS ratio by actively lowering the risk weighted assets and by strengthening equity capital. Equity capital will be increased by achieving net income of more than KRW 1 trillion from increasing fee incomes, and decreasing bad debts expenses, as well as reducing general and administrative expenses. Strength in Our ValueS098 MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Liquidity Ratio (Unit: %, %p) Liquidity Ratio in Local Currency Liquidity Ratio in Foreign Currency Fixed Assets Ratio for Business Purposes 2014 123.10 121.29 14.57 2013 120.75 125.86 14.73 Change (%p) 2.35 -4.57 -0.16 The Bank’s liquidity ratio in local currency improved from 120.75% to 123.10%, but the liquidity ratio in foreign currency dropped 4.57% to 121.29%. Currently liquidity indicators are sufficiently above supervision standards and show stable financing and management structure. The Bank will respond proactively to the changes in domestic & foreign market conditions and safely manage the liquidity ratio within a comforting zone, and will also thoroughly manage asset and liability. Profitability (Unit: %, %p) Return on Assets (ROA) Return on Equity (ROE) Net Interest Margin (Bank+Card) Net Interest Margin (Bank) 2014 0.21 3.55 1.97 1.56 2013 0.14 2.56 2.10 1.73 Change (%p) 0.07 0.99 -0.13 -0.17 *ROA, ROE: Excluding one-off factors related to the sale and the spin-off of subsidiaries Although fee incomes decreased and the competition between banks intensified in 2014, the Bank dramatically decreased credit costs and thus ROA and ROE slightly increased to 0.21% and 3.55%, respectively. The Net Interest Margin (Bank+Card) inevitably decreased 0.13%p to 1.97% from the previous year due to the decrease in margins originated by focusing on high net worth customers and due to the lowering of benchmark interest rates on Aug. and Oct. 2014. Although undergoing the low interest rate environment, the Bank will proactively make every effort to improve its profitability by improving efficiency in the management or organizational structure, implementing appropriate margins according to customer classifications, decreasing the costs of funding(perhaps by refunding the current high interest debentures), and increasing low cost deposits for sustainable future growth. Woori Bank Annual Report 2014099 INDEPENDENT AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT English Translation of Independent Auditors’ Report Originally Issued in Korean on March 6, 2015 To the Shareholders and the Board of Directors of Woori Bank: Report on the Consolidated Financial Statements We have audited the accompanying consolidated financial statements of Woori Bank and subsidiaries (the “Group”), which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, respectively, and the consolidated statements of comprehensive income, consolidated statements of changes in stockholders’ equity and consolidated statements of cash flows, all expressed in Korean Won, for the years ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an audit opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Korean Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement, whether due to fraud or error. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Strength in Our ValueS 100 n Opinion In our op financial financial pinion, the co l position of l performanc onsolidated f the Group as ce and their c financial stat s of Decemb cash flows fo tements pres ber 31, 2014 or the years th ent fairly, in and 2013, re hen ended in all material espectively, a n accordance e respects, the and their e with K-IFR RS. Matters Other M n Opinion nsolidated fin mparative con The com onsolidated f pinion, the co In our op were audited er 31, 2013 w Decemb the Group as l position of financial (“KSAs” ”). ce and their c l performanc financial es and auditin ting principle Account Matters Other M consolidated ompanying c The acco and cash flo of operations results o nsolidated fin mparative con The com accepted s other than t d in countries were audited er 31, 2013 w Decemb blic of Korea in the Repub utilized i (“KSAs” ”). nd applied in y accepted an generally al statements dated financia consolid es and auditin ting principle Account ting standard res and audit procedur consolidated ompanying c The acco of operations results o and cash flo Emphas er sis of Matte accepted s other than t d in countries utilized i blic of Korea in the Repub 14, Woori Ba ember 1, 201 On Nove nd applied in y accepted an generally ”), which had g Company” “Holding al statements dated financia consolid mpany met th Holding Com and the H ting standard res and audit procedur in any chang d not result i and it did presented ar l statements financial Emphas er sis of Matte ed December the year ende and for t nancial statem financial stat d in accordan s of Decemb cash flows fo ng standards financial sta ows in accord nancial statem the Republic d in accordan a to audit such n other count s are for use b ng standards ds and their a financial sta ows in accord the Republic a to audit such ank (the “Ban n other count d been a pare s are for use b he definition ds and their a e of econom e the consoli r 31, 2013. ments of Wo tements pres nce with the f ber 31, 2014 or the years th s and their ap atements are dance with ac ments of Wo c of Korea. In nce with the f h consolidat tries. Accord by those kno s and their ap application in atements are dance with ac c of Korea. In h consolidat nk”) merged tries. Accord ent company by those kno of the “busi application in mic substance idated financ oori Finance ent fairly, in former Kore and 2013, re hen ended in pplication in not intended ccounting pr oori Finance n addition, th former Kore ed financial dingly, this re owledgeable pplication in n practice. not intended ccounting pr n addition, th ed financial d with Woori dingly, this re of the Bank owledgeable ness combin n practice. e. Therefore, cial statemen Holdings Co all material an Standards espectively, a n accordance practice vary d to present th rinciples and Holdings Co he procedure an Standards statements m eport and the about Korea practice vary d to present th rinciples and he procedure statements m i Finance Ho eport and the . The merger about Korea nation under c the compara nts of the Hol f o., Ltd. as of respects, the e g s on Auditing and their RS. e with K-IFR untries. y among cou position, he financial p enerally d practices ge f o., Ltd. as of ces es and practic g s on Auditing om those may differ fro ying e accompany g an accounting y among cou untries. position, he financial p enerally d practices ge ces es and practic om those may differ fro Ltd. (the oldings Co., L ying e accompany e Bank r between the g an accounting ntrol”, common con dated ative consolid any as of lding Compa On Nove “Holding and the H and it did financial March 6 and for t ember 1, 201 g Company” Holding Com d not result i l statements , 2015 the year ende 14, Woori Ba ”), which had mpany met th in any chang presented ar ed December ank (the “Ban d been a pare he definition e of econom e the consoli r 31, 2013. nk”) merged ent company of the “busi mic substance idated financ d with Woori of the Bank ness combin e. Therefore, cial statemen i Finance Ho . The merger nation under c the compara nts of the Hol oldings Co., L r between the common con ative consolid lding Compa Ltd. (the e Bank ntrol”, dated any as of March 6 , 2015 No otice to Read ders This rep circumst read. Suc may resu ort is effectiv tances may h ch events or ult in modific ve as of Mar have occurred circumstanc cations to the rch 6, 2015, t d between th ces could sign No e auditors’ re the auditors’ he auditors’ r nificantly aff otice to Read eport. report date. report date an ffect the cons ders Certain subs nd the time th olidated fina sequent even the auditors’ ancial statem nts or report is ments and This rep circumst read. Suc may resu ort is effectiv tances may h ch events or ult in modific ve as of Mar have occurred circumstanc cations to the rch 6, 2015, t d between th ces could sign e auditors’ re the auditors’ he auditors’ r nificantly aff eport. report date. report date an ffect the cons Certain subs nd the time th olidated fina sequent even the auditors’ ancial statem nts or report is ments and Woori Bank Annual Report 2014101 WOORI BANK AND SUBSIDIARIES WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2014 AND 2013 AS OF DECEMBER 31, 2014 AND 2013 ASSETS Cash and cash equivalents (Note 6) Financial assets at fair value through profit or loss (Notes 4,7,11,12,18 and 26) Available-for-sale financial assets (Notes 4,8,11,12 and 18) Held-to-maturity financial assets (Notes 4,9,11,12 and 18) Loans and receivables (Notes 4,10,11,12,44 and 45) Investments in joint ventures and associates (Note 13) Investment properties (Note 14) Premises and equipment (Notes 15,17 and 18) Intangible assets and goodwill (Note 16) Assets held for sale (Note 17) Current tax assets (Note 42) Deferred tax assets (Note 42) Derivative assets (Notes 7,11,12 and 26) Other assets (Notes 19 and 45) Disposal group held for sale (Note 47) Disposal group held for distribution to owners (Note 48) Total assets LIABILITIES Financial liabilities at fair value through profit or loss (Notes 4,11,12,20 and 26) Deposits due to customers (Notes 4,11,21 and 45) Borrowings (Notes 4,11,12 and 22) Debentures (Notes 4,11 and 22) Provisions (Notes 23 and 44) Net defined benefit liability (Note 24) Current tax liabilities (Note 42) Deferred tax liabilities (Note 42) Derivative liabilities (Notes 4,11,12 and 26) Other financial liabilities (Notes 4,11,12 and 25) Other liabilities (Notes 25 and 45) Liabilities directly associated with disposal group held for sale (Note 47) Liabilities directly associated with disposal group held for distribution to owners (Note 48) Total liabilities (Continued) December 31, December 31, 2014 2013 (Korean Won in millions) 5,962,861 5,477,649 4,554,180 18,810,845 13,044,448 223,370,135 648,436 357,550 2,501,102 295,728 8,013 4,845 257,858 196,061 145,157 - - 270,157,219 2,675,354 188,516,465 17,707,595 24,795,904 692,009 75,591 298,762 21,757 - 16,889,687 390,670 - - 252,063,794 4,806,197 17,085,448 12,038,820 211,912,373 617,570 340,620 2,536,441 268,926 587 143,101 155,256 131,410 178,886 34,684,805 50,312,293 340,690,382 2,507,248 175,323,644 18,231,511 21,677,674 684,799 71,602 9,980 49,105 1,785 19,914,947 411,278 32,047,626 46,882,414 317,813,613 Strength in Our ValueS 102 WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2014 AND 2013 (CONTINUED) AS OF DECEMBER 31, 2014 AND 2013 (CONTINUED) EQUITY Owners’ equity: Capital stock (Note 28) Hybrid securities (Note 29) Capital surplus (Note 28) Other equity (Note 30) Retained earnings (Notes 31and 32) (Regulatory reserve for credit loss as of December 31, 2014 and 2013 is 1,800,387 million Won and 1,685,623 million Won, respectively Unreserved regulatory reserve for credit loss as of December 31, 2014 and 2013 is nil Regulatory reserve for credit loss to be reserved (reversed) as of December 31, 2014 and 2013 is (-)44,245 million Won and 114,764 million Won, respectively Planned provision (reversal) of regulatory reserve for credit loss as of December 31, 2014 and 2013 is (-)44,245 million Won and 114,764 million Won, respectively) Equity directly associated with disposal group held for sale (Note 30) Equity directly associated with disposal group held for distribution to owners (Note 30) Non-controlling interests Total equity Total liabilities and equity December 31, December 31, 2014 2013 (Korean Won in millions) 17,983,501 3,381,392 2,538,823 291,066 (2,393,138) 17,847,633 4,030,077 498,407 176,502 (35,367) 14,165,358 - - 109,924 18,093,425 270,157,219 13,112,690 29,820 35,504 5,029,136 22,876,769 340,690,382 See notes to consolidated financial statements. Woori Bank Annual Report 2014 WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 103 Interest income Interest expense Net interest income (Notes 34 and 45) Fees and commissions income Fees and commissions expense Net fees and commissions income (Notes 35 and 45) Dividend income (Note 36) Net gain on financial instruments at fair value through profit or loss (Note 37) Net loss on available-for-sale financial assets (Note 38) Impairment losses due to credit loss (Notes 39 and 45) General and administrative expenses (Note 40) Other net operating expenses (Notes 40 and 45) Operating income Share of losses of joint ventures and associates (Note 13) Other net non-operating income Non-operating income (loss) Net income before income tax expense Income tax expense (Note 42) Net income from continuing operations Net income (loss) from discontinued operations (Notes 47 and 48) Net income (loss) (Net income after the provision(reversal) of regulatory reserve for credit loss for the years ended December 31, 2014 and 2013 are 1,252,214 million Won and (-)828,199 million Won, respectively) (Note 32) Remeasurement of the net defined benefit liability Items that will not be reclassified to profit or loss Loss on available-for-sale financial assets Share of other comprehensive loss of joint ventures and associates Gain (loss) on foreign currency translation of foreign operations Loss on valuation of cash flow hedge Items that may be reclassified to profit or loss Other comprehensive loss, net of tax Total comprehensive income (loss) Net income attributable to: Net income (loss) attributable to owners Income from continuing operations Income (loss) from discontinued operations Net loss attributable to non-controlling interests Income from continuing operations Loss from discontinued operations 2014 2013 (Korean Won in millions, except for per share data) 9,211,240 (4,718,222) 4,493,018 9,493,383 (5,001,361) 4,492,022 1,598,015 (681,000) 917,015 96,812 189,912 (68,924) (1,096,940) (2,958,919) (674,266) 897,708 (67,980) 4,667 (63,313) 834,395 (288,195) 546,200 661,769 1,565,224 (638,723) 926,501 87,641 123,900 (85,242) (2,277,260) (2,902,172) (125,823) 239,567 (1,277) 49,377 48,100 287,667 (35,096) 252,571 (966,006) 1,207,969 (713,435) (51,650) (51,650) (75,586) (1,604) 48,393 (27,150) (55,947) (107,597) 1,100,372 1,213,980 435,289 778,691 (6,011) 110,911 (116,922) 9,217 9,217 (50,953) (6,375) (59,824) (2,412) (119,564) (110,347) (823,782) (537,688) 162,011 (699,699) (175,747) 90,560 (266,307) Total comprehensive income attributable to: Comprehensive income (loss) attributable to owners Comprehensive loss attributable to non-controlling interests Basic and diluted earnings (losses) from continuing and discontinued operations per share (In Korean Won) (Note 43) Basic and diluted earnings from continuing operations per share (In Korean Won) (Note 43) 1,192,191 (91,819) (623,695) (200,087) 1,621 536 (704) 165 See notes to consolidated financial statements. Strength in Our ValueS 104 WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Capital stock Hybrid securities Capital surplus 4,030,077 - - 498,407 - - 174,044 - - January 1, 2013 Net loss Dividends Changes in equities of Retained earnings Other equity (Korean Won in millions) 112,013 - - 13,881,378 (537,688) (201,503) Controlling interests Non- controlling interests Total equity 18,695,919 (537,688) (201,503) 4,337,157 (175,747) (21,319) 23,033,076 (713,435) (222,822) and Woori Finance Holdings - 1,880,798 178,058 (178,060) consolidated subsidiaries Changes in investments in consolidated subsidiaries Loss on valuation of available- for-sale financial assets Changes in equity of joint ventures and associates Foreign currency translation of foreign operations Cash flow hedge Remeasurement of the net defined benefit liability Changes in other equity Amortization of consolidated subsidiaries’ stock discount Dividends to hybrid securities Issuance of hybrid securities in consolidated subsidiaries December 31, 2013 January 1, 2014 Net income (loss) Dividends Changes due to the Spin-off Merger between Woori Bank Merger between Indonesia Woori Bank and Saudara Bank Changes in capital surplus of consolidated subsidiaries Issuance of capital stocks in consolidated subsidiaries Acquisition of treasury stock Disposal of consolidated subsidiaries Gain (loss) on valuation of available-for-sale financial assets Changes in equity of joint ventures and associates Foreign currency translation of foreign operations Cash flow hedge Remeasurement of the net defined benefit liability Issuance of hybrid securities Dividends to hybrid securities Redemption of hybrid securities in consolidated subsidiaries Changes in other equity December 31, 2014 - - - - - - - - - - - - - - - - - - - - (259) 2,717 - - - - - - - - - - (33,782) (6,375) (51,999) (765) 6,915 3,852 98 - - - - - - - - - (259) (280) (539) 2,717 81,370 84,087 (33,782) (17,171) (50,953) (6,375) (51,999) (765) 6,915 3,852 - (6,375) (7,825) (1,647) 2,302 1,612 (59,824) (2,412) 9,217 5,464 (98) (29,399) - (29,399) - (154,869) - (184,268) - 4,030,077 - 498,407 - 176,502 - 29,957 - 13,112,690 - 17,847,633 985,553 5,029,136 985,553 22,876,769 4,030,077 - - (648,685) 498,407 - - - 176,502 - - (68,106) 29,957 - - (2,238,228) 13,112,690 1,213,980 - (110,405) 17,847,633 1,213,980 - (3,065,424) 5,029,136 (6,011) (8,042) (286,564) 22,876,769 1,207,969 (8,042) (3,351,988) - - - - - - - - - - - - - - - - - - - - - - 159,618 - 21,724 (23) - - (17,110) - - (37,580) - - - - - - - - - 86,537 (2,974) 28,856 (18,220) (63,426) - - - - - - - - - - - - (764) - (50,129) 1,880,796 (1,880,798) (2) 21,724 49,134 70,858 (23) 572 549 (17,110) (37,580) 17,391 - 281 (37,580) - (1,900,347) (1,900,347) 86,537 (97,181) (10,644) (2,974) 1,370 (1,604) 28,856 (18,220) (64,190) 159,618 (50,129) 19,537 (8,851) 48,393 (27,071) (683) - (116,721) (64,873) 159,618 (166,850) - - 3,381,392 2,538,823 - - - 21 291,066 - - (2,393,138) (1) (13) 14,165,358 (1) 8 17,983,501 (702,994) 976 109,924 (702,995) 984 18,093,425 See notes to consolidated financial statements. Woori Bank Annual Report 2014 105 WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 Cash flows from operating activities: Net income (loss) Adjustments: Income tax expense Interest income Interest expense Dividend income Impairment losses due to credit loss Loss on available-for-sale financial assets Share of losses of investments in joint ventures and associates Loss on foreign exchange translation Loss on transaction of derivatives / valuation of derivatives Loss on fair value hedged items Provisions Retirement benefits Depreciation and amortization Loss on disposal of investments in joint ventures and associates Loss on disposal of premises and equipment and other assets Impairment loss on premises and equipment and other assets Impairment loss on assets held for sale Impairment loss on disposal group held for sale and disposal group held for distribution to owners Loss on disposal of disposal group held for sale Gain on valuation of financial instruments at fair value through profit or loss Share of profits of investments in joint ventures and associates Gain on foreign exchange translation Gain on transaction of derivatives / valuation of derivatives Gain on fair value hedged items Reversal of provisions Gain on disposal of investments in joint ventures and associates Gain on disposal of premises and equipment and other assets Reversal of impairment loss on premises and equipment and other assets Gain on disposal of group held for sale Gain on disposal of assets held for sale Reversal of impairment loss on assets held for sale Reversal of impairment loss on disposal group held for sale and disposal group held for distribution to owners Changes in operating assets and liabilities: Financial instruments at fair value through profit or loss Loans and receivables Other assets Deposits due to customers Provision for guarantee and loan commitment Net defined benefit liability Other financial liabilities Other liabilities Cash received from (paid for) operating activities: Interest income received Interest expense paid Dividends received Income tax paid Net cash used in operating activities (Continued) 2014 2013 (Korean Won in millions) 1,207,969 (713,435) (145,981) (10,285,933) 5,207,289 (135,127) 1,202,152 93,639 123,038 82,077 22,253 87,476 81,073 132,768 247,216 1,788 2,788 2,320 2,420 7,728 46,782 (34,830) (55,674) (39,485) (85,975) (23,317) (744) (31,899) (1,134) (533) (159,794) (1,039) (337) 622,656 (12,837,884) 6,622,744 (151,494) 2,706,389 95,729 43,488 55,228 121,713 13,505 85,732 167,910 300,453 4,946 5,158 60,692 - 833,766 - (43,058) (64,005) (50,135) (18,801) (128,361) (10,972) (19,974) (13,052) (3,051) - - - (259) - 1,547,502 (15,439,044) (92,867) 14,052,504 (106,780) (276,638) (1,933,627) (16,183) 2,413,710 (17,106,848) 54,493 9,705,237 (98,270) (158,487) (1,147,373) 38,359 10,171,063 12,918,030 (6,974,736) (5,210,976) 151,051 155,164 (479,002) (117,589) (2,997,949) 281,244 Strength in Our ValueS 106 WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS WOORI BANK AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (CONTINUED) Cash flows from investing activities: Net cash provided by disposal of subsidiaries (Note 47) Net cash provided by the merger of Saudara bank (Note 51) Disposal of available-for-sale financial assets Redemption of held-to-maturity financial assets Disposal of investments in joint ventures and associates Disposal of investment properties Disposal of premises and equipment Disposal of intangible assets Disposal of assets held for sale Net decrease of derivatives for risk hedge Acquisition of available-for-sale financial assets Acquisition of held-to-maturity financial assets Acquisition of investments in joint ventures and associates Acquisition of investment properties Acquisition of premises and equipment Acquisition of intangible assets Acquisition of assets held for sale Net increase of derivatives for risk hedge Net cash used in investing activities Cash flows from financing activities: Net increase in borrowings Issuance of debentures Issuance of hybrid securities Increase of paid in capital in subsidiaries Issuance of hybrid securities in subsidiaries Decrease due to the Spin-off Net decrease in borrowings Repayment of debentures Dividends paid Acquisition of treasury stock Expenses on stock issued Dividends paid on hybrid securities Dividends paid on non-controlling interests Dividends paid on hybrid securities of subsidiaries Redemption of non-controlling hybrid securities Other decrease in non-controlling interests, net Net cash provided by financing activities 2014 2013 (Korean Won in millions) 1,193,584 81,100 26,865,684 4,823,630 235,778 - 36,364 88,197 29,857 - (28,527,400) (5,658,655) (67,431) (18) (140,639) (86,910) - (14,153) (1,141,012) - 18,229,052 159,618 1,121 - (792,949) (927,711) (15,448,663) - (37,580) (3) (60,780) (8,042) (98,522) (702,995) (1,119) 311,427 - - 26,449,831 6,768,916 106,438 6,583 18,478 8,660 54,611 14,632 (29,152,120) (4,250,044) (144,644) (513) (159,437) (107,092) (7,266) - (392,967) 3,113,963 10,501,447 - 80,273 985,553 - - (10,084,216) (201,503) - - (29,398) - (147,498) - (38,643) 4,179,978 Net increase (decrease) in cash and cash equivalents (548,341) 789,062 Cash and cash equivalents, beginning of the period Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents, end of the period Cash and cash equivalents directly associated with disposal group held for sale Cash and cash equivalents directly associated with disposal group held for distribution to owners Cash and cash equivalents on consolidated statement of financial position See notes to consolidated financial statements 6,472,459 38,743 5,962,861 5,778,390 (94,993) 6,472,459 - (303,202) - 5,962,861 (691,608) 5,477,649 Woori Bank Annual Report 2014 107 WOORI BANK AND SUBSIDIARIES WOORI BANK AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 1. GENERAL (1) Summary of the parent company Woori Bank (hereinafter referred to the “Bank”), which is a controlling entity in accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1110 – Consolidated Financial Statements, was established in 1899 and is engaged in the commercial banking business under the Banking Law, trust business under the Financial Investment Services and Capital Market Act, and foreign exchange business with approval from the Bank of Korea (“BOK”) and the Ministry of Finance and Economy (“MOFE”). On June 24, 2002, Woori Finance Holdings Co., Ltd. listed its common shares on the Korea Exchange through public offering. In addition, on September 29, 2003, the company registered with the Securities and Exchange Commission in the United States of America and, on the same day, listed its American Depositary Shares on the New York Stock Exchange. Previously, Woori Finance Holdings Co., Ltd., the former holding company of Woori Financial Group, established on March 27, 2001 held a 100% ownership of the Bank. Effective November 1, 2014, Woori Finance Holdings Co., Ltd. completed its merger (the “Merger”) with and into Woori Bank, its wholly-owned subsidiary, as contemplated by the merger agreement (the “Merger Agreement”) dated July 28, 2014, by and between Woori Finance Holdings and Woori Bank. Pursuant to the Merger Agreement, for each outstanding common share of Woori Finance Holdings, one new common share of Woori Bank, par value 5,000 Korean Won, was issued to shareholders recorded in the shareholder register of Woori Finance Holdings. Accordingly, the shares of the Bank, 597 million shares, prior to the merger, was reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. As a result, as of December 31, 2014, the common stock of the Bank amounts, expressed in Korean Won (the “KRW” or “million Won”), to 3,381,392 million Won. As Woori Finance Holdings was merged into the Bank, the Bank, which is the existing company, succeeded such rights and obligations as a listed company on Korea Exchange and New York Stock Exchange. As a result of such merger, the Bank incorporated Woori Card Co., Ltd., Woori Investment Bank Co., Ltd., Woori FIS Co., Ltd., Woori Private Equity Co., Ltd., and Woori Finance Research Institute Co., Ltd. within its consolidation scope. The head office of the Bank is located in 51, Sogong-ro, Jung Gu, Seoul, Korea. The Bank has 993 branches and offices in Korea, and 21 branches and offices overseas as of December 31, 2014. (2) The consolidated financial statements for Woori Bank and its subsidiaries (the “Group”) include the following subsidiaries: Subsidiaries Woori Bank: Kyongnam Bank (*1) Kwangju Bank (*1) Woori FIS Co., Ltd. Woori F&I (*1) Woori Investment &Securities (*1) Woori Asset Management (*1) Woori Private Equity Co., Ltd. Woori Financial (*1) Main business Finance 〃 〃 System software development & maintenance Finance 〃 〃 〃 〃 Percentage of ownership (%) December 31, 2013 December 31, 2014 - - 100.0 - - - 100.0 - 100.0 100.0 100.0 100.0 37.9 100.0 100.0 52.0 Strength in Our ValueS 108 Subsidiaries Woori FG Savings Bank (*1) Woori Finance Research Institute Woori Card Co., Ltd. Woori Credit Information Co., Ltd. Woori America Bank Woori Global Market Asia Limited Woori Bank (China) Limited ZAO Woori Bank PT. Bank Woori Indonesia (*6) Indonesia Woori Saudara Bank (*6) Woori Brazil Bank Korea BTL Infrastructure Fund (*9) Woori Fund Service Co., Ltd. Woori Finance Cambodia (*10) Kumho Trust First Co., Ltd. (*2) Asiana Saigon Inc. (*2) An-Dong Raja First Co., Ltd. (*2) Consus Eighth Co., LLC (*2) KAMCO Value Recreation First Securitization Specialty Co., Ltd. (*2) Woori IB Global Bond Co., Ltd. (*2) Hermes STX Co., Ltd. (*2) BWL First Co., LLC (*2) Woori Poongsan Co., Ltd. (*2) Pyeongtaek Ocean Sand Inc. (*2) W synergy First Co., Ltd. (*4) Deogi Dream Fourth Co., Ltd. (*2) Guam Emerald Ocean View Inc. (*4) Jeonju Iwon Ltd. (*2) Wonju I one Inc. (*2) Newyear Eighth Co., Ltd. (*2) Jilrian First Co., Ltd. (*2) Heitz Third Co., Ltd. (*2) Principle Guaranteed Trust (*3) Principle and Interest Guaranteed Trust(*3) Woori Bank and Woori Private Equity Co., Ltd.: Woori Private Equity Fund (*8)(*11) Woori Investment Bank Co., Ltd. (*7) Kyongnam Bank: Consus Sixth Co., LLC (*1) Principle Guaranteed Trust (*1) Principle and Interest Guaranteed Trust (*1) Kwangju Bank: Hybrid First Specialty Inc. (*1) KAMCO Value Recreation Second Securitization Specialty Inc. (*1) Principle Guaranteed Trust (*1) Principle and Interest Guaranteed Trust (*1) Woori F&I Co., Ltd.: Woori AMC Co., Ltd. (*1) Woori F&I Seventh Asset Securitization Specialty (*1) Woori F&I Tenth Asset Securitization Specialty (*1) Woori F&I Thirteenth Asset Securitization Specialty (*1) Woori SB Tenth Asset Securitization Specialty (*1) - 2 - Main business Finance Other service business Finance Credit information Finance 〃 〃 〃 〃 〃 〃 〃 〃 〃 Asset securitization 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Trust 〃 Other financial business Other credit finance business Asset securitization Trust 〃 Asset securitization 〃 Trust 〃 Other financial business Asset securitization 〃 〃 〃 Percentage of ownership (%) December 31, 2014 December 31, 2013 - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 - 74.0 100.0 99.9 100.0 100.0 0.0 0.0 0.0 0.0 15.0 0.0 0.0 0.0 0.0 0.0 - 0.0 - 0.0 0.0 0.0 0.0 0.0 0.0 0.0 31.9 59.5 - - - - - - - - - - - - 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 95.2 - 100.0 100.0 100.0 - 0.0 0.0 0.0 0.0 15.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - - 0.0 0.0 0.0 61.0 42.8 0.0 0.0 0.0 0.0 15.0 0.0 0.0 100.0 100.0 100.0 94.6 50.0+1share Woori Bank Annual Report 2014 109 Subsidiaries Woori F&I Sixteenth Asset Securitization Specialty (*1) Woori EA Third Asset Securitization Specialty (*1) Woori EA Fifth Asset Securitization Specialty (*1) Woori F&I Seventeenth Asset Securitization Specialty (*1) Woori EA Eighth Asset Securitization Specialty (*1) WR Investment America, LLC (*1) Woori F&I Eighteenth Asset Securitization Specialty (*1) Woori EA Tenth Asset Securitization Specialty (*1) Woori F&I Nineteenth Asset Securitization Specialty (*1) Woori F&I Twentieth Asset Securitization Specialty (*1) Woori F&I Twenty first Asset Securitization Specialty (*1) Woori F&I Twenty second Asset Securitization Specialty (*1) Woori F&I Twenty third Asset Securitization Specialty (*1) Woori F&I Twenty fourth Asset Securitization Specialty (*1) Woori F&I Twenty fifth Asset Securitization Specialty (*1) Woori EA Twelfth Asset Securitization Specialty (*1) Woori EA Thirteenth Asset Securitization Specialty (*1) Woori EA Fourteenth Asset Securitization Specialty (*1) Woori EA Fifteenth Asset Securitization Specialty (*1) Woori EA Eighteenth Asset Securitization Specialty (*1) Woori F&I Twenty sixth Asset Securitization Specialty (*1) Woori F&I Twenty seventh Asset Securitization Specialty (*1) Woori F&I Twenty eighth Asset Securitization Specialty (*1) Woori F&I Twenty ninth Asset Securitization Specialty (*1) Woori F&I Thirtieth Asset Securitization Specialty (*1) Woori F&I Thirty first Asset Securitization Specialty (*1) Woori F&I Thirty second Asset Securitization Specialty (*1) Woori F&I Thirty third Asset Securitization Specialty (*1) Woori F&I Thirty fourth Asset Securitization Specialty (*1) Woori F&I Thirty fifth Asset Securitization Specialty (*1) Woori F&I Thirty sixth Asset Securitization Specialty (*1) Woori F&I Thirty seventh Asset Securitization Specialty (*1) Woori F&I Thirty eighth Asset Securitization Specialty (*1) Woori F&I Thirty ninth Asset Securitization Specialty (*1) Woori F&I Fortieth Asset Securitization Specialty (*1) FS 1312 Asset Securitization Specialty (*1) Woori Investment & Securities Co., Ltd.: Woori Futures Co., Ltd. (*1) Woori Investment Asia PTE, Ltd. (*1) Woori Absolute Global Opportunity Fund (*1) LG Investments Holding B.V. (*1) Woori Investment Securities (H.K.)Ltd. (*1) Woori Investment Securities Int’l Ltd. (*1) Woori Investment Securities America, Inc. (*1) Woori CBV Securities Corporation (*1) MARS Second Private Equity Fund (*1) Woori Absolute Partners PTE, Ltd. (*1) Woori Korindo Securities Indonesia (*1) Woori Absolute Return Investment Strategies Fund (*1) KoFC Woori Growth Champ Private Equity Fund (*1) Woori Investment advisory Co., Ltd. (Beijing) (*1) IBS eleventh Co., Ltd. (*1) Alphen Rose Second Co., Ltd. (*1) - 3 - Main business Asset securitization 〃 〃 〃 〃 Administration of NPL Asset securitization 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 〃 Futures trading Investments Securities investments 〃 Securities business Securities investments 〃 Securities business Other financial business Securities investments 〃 〃 Other financial business Securities investments 〃 〃 Percentage of ownership (%) December 31, 2014 December 31, 2013 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 100.0 70.0 70.0 100.0 51.0 100.0 100.0 51.0 100.0 60.0 100.0 100.0 100.0 100.0 100.0 70.0 70.0 70.0 70.0 67.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 8.9 100.0 60.0 100.0 27.3 95.1 0.0 0.0 Strength in Our ValueS 110 Principle Guaranteed Trust (*1) Subsidiaries Woori Private Equity Fund: Woori EL Co., Ltd. Main business Trust Percentage of ownership (%) December 31, 2014 December 31, 2013 - 0.0 Other financial business 100.0 KoFC Woori Growth Champ Private Equity Fund: Woori Giant First Co., Ltd. (*1) Woori Investment Bank: HUB First Co., Ltd. (*4) HUB Second Co., Ltd. (*4) HUB Third Co., Ltd. (*4) Two Eagles KIB LLC (*4) Woori Private Equity Co., Ltd. and TWO Eagles KIB LLC: Two Eagles LLC (*4) Woori PE and My Asset Manhattan Private REIT First: Sahn Eagles LLC (*4) Woori Bank and Woori Investment Bank: Woori CS Ocean Bridge 15th and 43 beneficiary certificates for the rest (*5) Asset securitization Asset securitization Asset securitization 〃 Other service business Other service business Other financial business Beneficiary certificates - - - - - - - - 100.0 100.0 0.0 0.0 0.0 100.0 55.0 60.0 - (*1) Deconsolidated through spin-off or disposal during the year ended December 31, 2014. (*2) The entity is a structured entity that is established for securitization of financial assets. It is determined that the Group controls the entity, even though the Group has less than 50% ownership of the entity, after considering facts and circumstances, such as the Group’s power over the entity’s related business activities, the Group’s exposure to variable returns from the its involvement with the entity, and the Group’s ability to affect the returns through its power over the entity. (*3) The entity is a money trust that was established in accordance with the Trust Business Act. It is determined that the Group controls the trust, even though the Group has less than 50% ownership of the trust, after considering facts and circumstances, such as the Group’s power over the trust’s related business activities, the Group’s exposure to variable returns from the its involvement with the trust, and the Group’s ability to affect the returns through its power over the trust. (*4) Deconsolidated through liquidation during the year ended December 31, 2014. (*5) The entity is a structured entity that is established for the purpose of investments in securities. It is determined that the Group controls the entity after considering facts and circumstances, such as the Group’s power over the entity’s related business activities, the Group’s exposure to variable returns from the its involvement with the entity, and the Group’s ability to affect the returns through its power over the entity. (*6) Indonesia Woori Bank, which was a subsidiary of the Bank, merged with Saudara Bank during the year ended December 31, 2014, and then changed its name into Indonesia Woori Saudara Bank. (*7) During the year ended December 31, 2014, the Group participated in the additional common stock issuance of Woori Investment Bank, and therefore its ownership ratio of the company has increased. (*8) During the year ended December 31, 2014, due to the spin-off or disposal of the subsidiaries, which was previously holding the shares of Woori Private Equity Fund, the Group’s ownership ratio of the company has decreased. (*9) During the year ended December 31, 2014, due to the change in Financial Investment Services and Capital Markets Act in Korea, new investors have participated in the company; as such the ownership ratio of the Bank has decreased. (*10) During the year ended December 31, 2014, the Group acquired over 50% ownership of the entity, and therefore the entity has been consolidated. (*11) The Group controls Woori Private Equity Fund as general partner; as such the company has been consolidated. - 4 - Woori Bank Annual Report 2014 111 (3) As of December 31, 2014, and 2013, despite having more than a 50% ownership stake, the Group has not consolidated the following companies as the Group do not have the ability to control following subsidiaries: Companies Golden Bridge NHN Online Private Equity Investment (*) Heungkuk High Class Private Investment Trust 377th (*) Location Korea Korea Main business Securities investments Securities investments Percentage of ownership (%) 60.0 51.3 (*) The Group owns the majority ownership of these SPEs, but has no power on the investees’ relevant activities. As a result, it is deemed that the Group has no control over the SPEs. (4) The summarized financial information before the elimination of intercompany transactions of the main subsidiaries whose financial information were prepared under K-IFRS for the Group’s consolidated financial statements is as follows (Unit: Korean Won in millions): As of and for the year ended December 31, 2014 Assets 246,580 80,292 3,682 5,732,039 1,001,542 33,500 1,338,415 Liabilities 211,671 37,442 467 4,543,180 861,209 6,049 1,170,884 1,735,356 1,390,103 274,132 3,844,399 254,716 164,282 669,818 9,070 11,930 164,246 3,397,735 218,122 131,319 262 426 6,716 Operating revenue 289,485 4,387 6,619 1,203,131 84,282 32,412 49,945 85,851 6,319 205,273 12,982 18,468 35,136 4,895 1,790 1,452,201 1,423,694 64,736 Net income (loss) attributable to owners Comprehensive income (loss) attributable to owners (1,285) 2,087 91 89,107 4,536 2,198 5,587 14,563 759 8,887 4,418 1,647 31,750 (415) 266 603 (4,564) 2,144 94 105,438 8,642 2,082 12,641 17,589 5,345 26,980 (18,193) (1,090) 31,750 (415) 615 603 434,845 882,984 34,734 (22,798) (100,951) 3,789,630 800,013 69,543 22,465 45,040 Woori FIS Woori Private Equity Woori Finance Research Institute Woori Card Woori Investment & Securities Woori Credit Information Woori America Bank Indonesia Woori Saudara Bank Woori Global Market Asia Limited Woori Bank (China) Limited ZAO Woori Bank Woori Brazil Bank Korea BTL Infrastructure Fund Woori Fund Service Woori Finance Cambodia Money trust under the Trust Business Act Structured entity for the securitization of financial assets Security investments structured entity - 5 - Strength in Our ValueS 112 Kyongnam Bank Kwangju Bank Woori FIS Woori F&I Woori Investment & Securities Woori Asset Management Woori Private Equity Woori Financial Woori FG Savings Bank Woori Finance Research Institute Woori Card Woori Investment Bank Woori Credit Information Woori America Bank Indonesia Woori Saudara Bank Woori Global Market Asia Limited Woori Bank (China) Limited ZAO Woori Bank Woori Brazil Bank Korea BTL Infrastructure Fund Woori Fund Service Money trust under the Trust Business Act Structured entity for the securitization of financial assets Security investments structured entity As of and for the year ended December 31, 2013 Net income (loss) attributable to owners Comprehensive income (loss) attributable to owners 126,871 67,873 (3,634) 48,878 14,508 4,137 1,691 52,876 (32,644) 689 53,875 (95,596) 2,118 24,532 (18,214) 1,150 3,677 (114) (4,522) 30,687 (270) (293) (65,385) 29,816 Assets 31,714,227 18,872,965 332,223 1,641,240 29,981,804 85,169 89,945 3,939,851 822,887 3,739 4,679,202 867,279 31,414 1,228,163 Liabilities 29,453,944 17,428,695 294,588 1,335,712 26,534,352 17,205 49,135 3,527,585 699,287 540 3,575,328 798,660 5,037 1,073,273 Operating revenue 1,698,639 1,007,156 311,660 184,406 4,027,395 31,527 5,008 338,010 84,875 6,656 800,352 141,320 35,154 48,707 666,804 526,192 350,165 184,475 79,933 7,276 3,414,199 201,035 143,993 651,973 2,694 2,994,515 146,248 109,940 255 532 247,721 11,722 7,689 33,747 5,035 1,389,082 1,361,177 51,640 130,181 61,030 (2,054) 49,115 47,975 4,179 1,776 54,143 (33,515) 611 47,998 (96,649) 1,912 27,939 20,896 2,291 10,258 3,037 (127) 30,687 (270) (293) 573,737 1,053,530 41,619 (58,662) 2,142,185 30,885 47,273 32,678 - 6 - Woori Bank Annual Report 2014 113 (5) The financial support that the Group provides to consolidated structured entities is as follows: - Structured entity for the securitization of financial assets The structured entity is established for the purpose of securitization of project financing loans, corporate bonds, and other financial assets. The Group is involved with the structured entity through providing with credit facility over asset-backed commercial papers issued by the entity, originating loans directly to the structured entity, or purchasing 100% of the subordinated debts issued by the structured entity. - Security investments structured entity The structured entity is established for the purpose of investments in securities. The Group acquires beneficiary certificates through its contribution of fund to the structured entity, and it is exposed to the risk that it may not be able to recover its fund depending on the result of investment performance of asset managers of the structured entity. - Money trust under the Trust Business Act The Group provides with financial guarantee of principal and interest or principal only to some of its trust products. Due to the financial guarantees, the Group may be obliged to supplement when the principal and interest or principal of the trust product sold is short of the guaranteed amount depending on the result of investment performance of the trust product. (6) The details of the limitations with regard to the transfer of assets or the redemption of liabilities within the Group are provided below. Some subsidiaries are regulated by the rules of the jurisdictions, in which they were incorporated, with regard to funding or management of deposits. Also, there is the limitation that they must have pre-approval from their regulators in case of remittance of earnings to the Bank. (7) The Group has entered into various agreements with structured entities such as asset securitization vehicles, structured finance and investment funds, and monetary funds. Where it is determined in accordance with K- IFRS 1110 that the Group has no controlling power over such structured entities, the entities are not consolidated. The nature of interests, which the Group retains, and the risks, to which the Group is exposed, of the unconsolidated structured entities are as follows: The interests to unconsolidated structured entities, which the Group retains, are classified to asset securitization vehicles, structured finance and investment fund, based on the nature and the purpose of the structured entities. Asset securitization vehicle issues asset-backed securities and redeems the principal and interest or distributes dividends on asset-backed securities with profits from collecting cash flows or sale of securitized assets. The Group, as a secondary guarantor, provides purchase commitments for its asset- backed securities or guarantees to such asset securitization vehicle and recognizes commission income or interest incomes related to the commitment or guarantees. As therefore, the Group would be exposed to risks to purchases or pays back asset-backed securities issued by the vehicles when a primary guarantor fails to provide the financing asset securitization vehicles. Structured finance includes investments in project financing on real estates, social overhead capital (“SOC”), infrastructure and shipping finance. They are formed as special purpose entity by funding through equity investments and loans from various investors. Investment decisions are made by the Group based on business outlook of such projects. In relation to such investments, the Group recognizes interest incomes on loans, gains or losses on valuation of equity investments or dividend income. The structured finance is secured by additional funding agreement, guarantee or credit facilities. However, the structured financing project would fail to return the capital of equity investments or principal of loans to the Group if it is discontinued or did not achieve business outcome. - 7 - Strength in Our ValueS114 Investment funds include trusts and private equity funds. A trust is formed by contributions from various investors, operated by a manager engaged to the trust and distributed proceeds from sales of investments to the investors. A private equity fund is established in order to acquire ownership interests in a portfolio company with exit strategy after implementing financial and operational restructuring of the company. The Group recognizes unrealized gains or losses on change in value of investments in proposition of ownership interests in investments. The Group would be exposed to risks of loss when the value of portfolio investment is decreased. Total assets of the unconsolidated structured entities, the carrying value of the related items recorded, the maximum exposure to risks, and the loss recognized as of and for the year ended December 31, 2014 and 2013 are as follows (Unit: Korean Won in millions): December 31, 2014 Asset securitization vehicle 8,701,441 Structured finance 39,770,040 Investment funds 7,174,629 613,105 185,946 190,303 - 236,807 - 49 70,638 70,638 2,295,445 613,105 340,560 1,341,780 - - 2,484,397 2,293,115 - 153,606 - - 37,676 564 564 3,016,797 2,484,395 - 470,590 61,812 6,661 926,993 - - 586,035 - 340,958 - - - 926,993 926,993 - - - 36,961 December 31, 2013 Asset securitization vehicle 46,802,368 Structured finance 29,994,406 Investment funds 13,346,997 1,364,866 157,638 344,555 304,999 557,579 - 95 19,622 19,622 3,637,323 1,364,772 799,180 1,337,881 135,490 3,576 3,178,522 2,949,141 - 178,713 - - 50,668 1,321 1,321 3,931,181 3,127,854 - 367,531 435,796 69,078 1,719,104 3,613 - 1,177,660 - 537,831 - 12 12 1,780,019 1,719,105 - 54,600 6,314 24,760 Total asset of the unconsolidated structured entities Assets recognized in the consolidated financial statements related to the unconsolidated structured entities Loans and receivables Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Investments in joint ventures and associates Derivative assets Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities Other liabilities (including provisions) The maximum exposure to risks Investments Purchase agreements Credit facilities Other agreements Loss recognized on unconsolidated structured entities Total asset of the unconsolidated structured entities Assets recognized in the consolidated financial statements related to the unconsolidated structured entities Loans and receivables Financial assets at fair value through profit or loss Available-for-sale financial assets Held-to-maturity financial assets Investments in joint ventures and associates Derivative assets Liabilities recognized in the consolidated financial statements related to the unconsolidated structured entities Other liabilities (including provisions) The maximum exposure to risks Investments Purchase agreements Credit facilities Other agreements Loss recognized on unconsolidated structured entities - 8 - Woori Bank Annual Report 2014 115 (8) Subsidiaries of which non-controlling interests are significant to the Group’s consolidated financial statements are as follows (Unit: Korean Won in millions): 1) Accumulated non-controlling interests at the end of the period Woori Investment & Securities (*) Woori Financial (*) Woori Investment Bank Indonesia Woori Saudara Bank Korea BTL Infrastructure Fund December 31, 2014 December 31, 2013 - - 60,121 56,828 1,024 1,925,263 188,464 42,818 - - (*) Deconsolidated due to the Group’s disposal of the subsidiary for the year ended December 31, 2014. As at the end of 2013, the accumulated non-controlling interest from hybrid securities issued by the subsidiaries amounted to 2,870,356 million Won. 2) Net income attributable to non-controlling interests Woori Investment & Securities (*) Woori Financial (*) Woori Investment Bank Indonesia Woori Saudara Bank Korea BTL Infrastructure Fund For the year ended December 31, 2014 For the year ended December 31, 2013 (125,724) - 2,215 702 48 (313,928) 28,925 (56,408) - - (*) Deconsolidated due to the Group’s disposal of the subsidiary for the year ended December 31, 2014. For the years ended December 31, 2014 and 2013, the net income which was attributed to non- controlling interests due to hybrid securities issued by the subsidiaries amounted to 116,721 million Won and 154,869 million Won, respectively. 3) Dividends to non-controlling interests Woori Investment & Securities (*) Woori Financial (*) Korea BTL Infrastructure Fund For the year ended December 31, 2014 For the year ended December 31, 2013 8,029 - 13 15,115 6,084 - (*) Deconsolidated due to the Group’s disposal of the subsidiary for the year ended December 31, 2014. 4) Change of non-controlling interest due to merger Indonesia Woori Bank, which was a subsidiary of the Bank, merged with Saudara Bank during the year ended December 31, 2014, and then changed its name into Indonesia Woori Saudara Bank. Due to the merger, the Bank’s ownership ratio of the company decreased from 95.2% to 74.0%. At the same time, the non-controlling interests increased by 49,134 million Won, and the increase was recognized as the decrease of equity attributable to the owner of the Bank (Note 51). - 9 - Strength in Our ValueS 116 2. SIGNIFICANT BASIS OF PREPARATION AND ACCOUNTING POLICIES (1) Basis of presentation The Group’s consolidated financial statements are prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”). The significant accounting policies that have been applied for the preparation of the consolidated financial statements for the year ended on December 31, 2014 are described below, and the significant accounting policies are the same as the accounting policies applied for the preparation of the previous year’s consolidated financial statements, except the impacts from the adoptions of accounting standards or interpretations which are explained below. The Group’s consolidated financial statements have been prepared based on the historical cost method except for specific non-current assets and certain financial assets or liabilities reported at fair value. The historical cost is generally measured by fair value of acquired assets. The consolidated financial statements of the Group were approved by the board of directors on March 6, 2015. 1) The Group has newly adopted the following new standards and interpretations that affected the Group’s accounting policies. Amendments to K-IFRS 1032 – Financial Instruments: Presentation The amendments to K-IFRS 1032 clarify the requirement for the offset presentation of financial assets and financial liabilities: the right to offset must not be conditional upon the occurrence of future events and can be exercised anytime during the contract periods. The right to offset is executable even in the case of default or insolvency. As the Group does not have any financial assets and financial liabilities that qualify for offset based on the criteria set out in the amendments and concluded that the application of the amendments has no significant impact on the Group’s consolidated financial statements. Amendments to K-IFRS 1110, 1112, and 1027 – Investment Entities Investment Entities introduced an exception to the principle in K-IFRS 1110 Consolidated financial statement that all subsidiaries shall be consolidated. The amendments define an investment entity and require a parent that is an investment entity to measure its investment in particular subsidiaries at fair value through profit or loss instead of consolidating those subsidiaries in its consolidated financial statements. Also, the new disclosure requirements for investment entities in accordance with the amendments of K- IFRS 1110 have been introduced by consequential amendments to K-IFRS 1112 Disclosure of Interests in Other Entities and K-IFRS 1027 Separate Financial Statements. The adoption of the amendments has no significant impact on the Group’s consolidated financial statements. Amendments to K-IFRS 1036 – Impairment of Assets The amendments introduced disclosure requirements of recoverable amount when the recoverable amount of an asset or CGU is measured at fair value less costs of disposal. The application of these amendments has no impact on the disclosure in the Group’s consolidated financial statements. Amendments to K-IFRS 1039 – Financial Instruments: Recognition and Measurement The amendments permits the Group to use hedge accounting when, as a consequence of laws or regulations or the introduction of laws or regulations, the original counterparty to the hedging instrument is replaced by a central counterparty or an entity which is acting as counterparty in order to effect clearing by a central counterparty. The adoption of the amendments has no significant impact on the consolidated financial statements. - 10 - Woori Bank Annual Report 2014117 Enactment of K-IFRS 2121 – Levies The enactment defines that the obligating event giving rise to the recognition of a liability to pay a levy is the activity that triggers the payment of the levy in accordance with the related legislation. The enactment has no significant impact on the Group’s consolidated financial statements. 2) The Group has not applied the following K-IFRSs that have been issued but are not yet effective: Amendments to K-IFRS 1019 – Employee Benefits If the amount of the contributions is independent from the numbers of years of service, the Group is permitted to recognize such contributions as a reduction in the service cost in the period in which the related service is rendered. The amendments are effective for the annual periods beginning on or after July 1, 2014. The Group anticipates that the amendments and enactments listed above may not have significant impact on the Group’s consolidated financial statements. Amendments to K-IFRS 1016 – Property, plant and Equipment The amendments to K-IFRS 1016 prohibit the Group from using a revenue-based depreciation method for items of property, plant and equipment. The amendments are effective for the annual periods beginning on or after January 1, 2016. Amendments to K-IFRS 1038 – Intangible Assets The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortization of an intangible asset unless the intangible asset is expressed as a measure of revenue, or it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. The amendments are effective for the annual periods beginning on or after January 1, 2016. Amendments to K-IFRS 1111 – Accounting for Acquisitions of Interests in Joint Operations The amendments to K-IFRS 1111 provides guidance on how to account for the acquisition of joint operation that constitutes a business as defined in K-IFRS 1103 Business Combinations. A joint operator is also required to disclose the relevant information required by K-IFRS 1103 and other standards for business combinations. The amendments to K-IFRS 1111 are effective for the annual periods beginning on or after January 1, 2016. Annual Improvements to K-IFRS 2010-2012 The amendments to K-IFRS 1102 Share-based payment (i) changes the definitions of ‘vesting condition’ and ‘market condition’; and (ii) add definition for ‘performance condition’ and ‘service condition’ which were previously included within the definition of ‘vesting condition’. The amendments to K-IFRS 1103 clarify the classification and measurement of the contingent consideration in business combination. The amendments to K-IFRS 1108 Operating Segments clarify that a reconciliation of the total of the reportable segments’ assets should only be provided if the segment assets are regularly provided to the chief operating decision maker. The amendments are effective for the annual periods beginning on or after July 1, 2014. Annual Improvements to K-IFRS 2011-2013 The amendments to K-IFRS 1103 clarify the scope of the portfolio exception for measuring the fair values of the group of financial assets and financial liabilities on a net basis includes all contracts that are within the scope the standard does not apply to the accounting for the formation of all types of joint arrangement in the financial statements of the joint arrangement itself. The amendments to K-IFRS 1113 Fair values Measurements and K-IFRS 1040 Investment Properties exist and these amendments are effective to the annual periods beginning on or after July 1, 2014. The Group is reviewing the impact from the amendments listed above on the Group’s consolidated financial statements. - 11 - Strength in Our ValueS118 (2) Basis of consolidated financial statement presentation The consolidated financial statements incorporate the financial statements of the Bank and entities (including structured entities) controlled by the Bank (and its subsidiaries, that is the Group). Control is achieved where the Group 1) has the power over the investee, 2) is exposed, or has rights, to variable returns from its involvement with the investee, and 3) has the ability to use its power to affect its returns. The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Bank's voting rights in an investee are sufficient to give it power, including: • The size of the Group's holding of voting rights relative to the size and dispersion of holdings of the other vote holders, • Potential voting rights held by the Group, other vote holders or other parties • Rights arising from other contractual arrangements • Any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders' meetings. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to the owner of the Group and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owner of the Group and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group transactions and, related assets and liabilities, income and expenses are eliminated in full on consolidation. Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non- controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owner of the Group. When the Group loses control of a subsidiary, a gain or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non- controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting under K-IFRS 1039 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a joint venture. - 12 - Woori Bank Annual Report 2014119 (3) Business Combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition- date fair values of the assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition- related costs are generally recognized in net income as incurred. At the acquisition date, the acquiree’s identifiable assets, liabilities and contingent liabilities that meet the condition for recognition under K-IFRS 1103 are recognized at their fair value, except that: • deferred tax assets or liabilities and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with K-IFRS 1012 Income Taxes and K-IFRS 1019 Employee Benefits, respectively; • liabilities or equity instruments related to share-based payment arrangements of the acquiree or share- based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with K-IFRS 1102 Share-based Payment at the acquisition date; and • non-current assets (or disposal groups) that are classified as held for sale in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations are measured at the lower of their previous carrying amounts and fair value less costs to sell. Any excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the Group’s previously held equity interest (if any) in the acquiree over the net of identifiable assets and liabilities assumed of the acquiree at the acquisition date is recognized as goodwill which is included in intangible assets. If, after reassessment, the Group’s interest in the fair value of the acquiree’s identifiable net assets exceeds the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any), the excess is recognized immediately in net income as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non- controlling interests' proportionate share of the recognized amounts of the acquiree’ s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another K-IFRS. When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with K-IFRS 1039 Financial Instruments: Recognition and Measurement, or K-IFRS 1037 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or loss. When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured at fair value at the acquisition date (i.e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognized in net income. Amounts arising from changes in value of interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to net income where such treatment would be appropriate if that interest were disposed of. - 13 - Strength in Our ValueS120 In case where i) a common entity ultimately controls over all participating entities, or businesses, in business combination transaction, prior to and after the transaction continuously, and ii) the control is not temporary, the transaction meets the definition of “business combination under common control” and it is deemed that the transaction only results in the changes in legal substance, not economic substance, from the perspective of the ultimate controlling party. Thus, in such transactions, the acquirer recognizes the assets and liabilities of the acquiree on its financial statements at the book values as recognized in the ultimate controlling party’s consolidated financial statements, and the difference between the book value of consideration transferred to and the book value of net assets transferred in is recognized as equity. (4) Investments in joint ventures and associates An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in making decision on the financial and operating policy of the investee but is not control or joint control over those policies. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to net assets relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The net income of current period and the financial results of the joint ventures and associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for in accordance with K-IFRS 1105 Non-current Assets Held for Sale and Discontinued Operations. Under the equity method, an investment in the joint ventures and associates is initially recognized in the consolidated statements of financial position at cost and adjusted thereafter to recognize the Group's share of the net assets of the joint ventures and associates and any impairment. When the Group's share of losses of the joint ventures and associates exceeds the Group's interest in the associate, the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the joint ventures and associates. Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the joint ventures and associates recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition is recognized immediately in net income. Upon a loss of significant influence over the joint ventures and associates, the Group discontinues the use of the equity method and measures at fair value of any investment that the Group retains in the former joint ventures and associates from the date when the Group loses significant influence. The fair value of the investment is regarded as its fair value on initial recognition as a financial asset in accordance with K-IFRS 1039 Financial Instruments; Recognition and Measurement. The Group recognized differences between the carrying amount and fair value in net income and it is included in determination of the gain or loss on disposal of joint ventures and associates. The Group accounts for all amounts recognized in other comprehensive income in relation to that joint ventures and associates on the same basis as would be required if the joint ventures and associates had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by an associate would be reclassified to net income on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to net income as a reclassification adjustment. When the Group’s ownership of interest in an associate or a joint venture decreases but the Group continues to maintain significant influence over an associate or a joint venture, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that decrease in ownership interest if the gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. Meanwhile, if interest on associate or joint venture meets the definition of non- current asset held for sale, it is accounted for in accordance with K-IFRS 1105. The requirements of K-IFRS 1039 Financial Instruments: Recognition and Measurement to determine whether there has been a loss event are applied to identify whether it is necessary to recognize any impairment loss with - 14 - Woori Bank Annual Report 2014121 respect to the Group’s investment in the joint ventures and associates. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with K-IFRS 1036 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount. Any impairment loss recognized is not allocated to any asset (including goodwill), which forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with K-IFRS 1036 to the extent that the recoverable amount of the investment subsequently increases. The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. When a subsidiary transacts with an associate or a joint venture of the Group, profits and losses resulting from the transactions with the associate or joint venture are recognized in the Group's consolidated financial statements only to the extent of interests in the associate or joint venture that are not related to the Group. (5) Investment in Joint operation A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. When the Group operates as a joint operator, it recognizes in relation to its interest in a joint operation: (a) its assets, including its share of any assets held jointly; (b) its liabilities, including its share of any liabilities incurred jointly; (c) its revenue from the sale of its share of the output arising from the joint operation; (d) its share of the revenue from the sale of the output by the joint operation; and (e) its expenses, including its share of any expenses incurred jointly. The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses. When the Group enters into a transaction with a joint operation in which it is a joint operator, such as a sale or contribution of assets, it is conducting the transaction with the other parties to the joint operation and, as such, the Group recognizes gains and losses resulting from such a transaction only to the extent of the other parties’ interests in the joint operation. When the Group enters into a transaction with a joint operation in which it is a joint operator, such as a purchase of assets, it does not recognize its share of the gains and losses until it resells those assets to a third party. (6) Revenue recognition 1) Interest income Interest income is recognized when earned. Interest income on financial assets that are classified as loans and receivables, available-for-sale or held-to-maturity is determined using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial asset (or group of financial assets) and of allocating the interest income over the expected life of the asset. The effective interest rate is the rate that exactly discounts estimated future cash flows to the instrument's initial carrying amount. Calculation of the effective interest rate takes into account fees payable or receivable that is an integral part of the instrument's yield, premiums or discounts on acquisition or issue, early redemption fees and transaction costs. All contractual terms of a financial instrument are considered when estimating future cash flows. - 15 - Strength in Our ValueS122 2) Loan origination fees and costs The commission fees earned on loans, which is part of the effective interest rate of loans, is accounted for deferred origination fees. Incremental cost related to the acquisition or disposal is accounted for deferred origination costs, and it is amortized on the effective interest method and included in interest revenues on loans. 3) Fees and commissions income Commitment and utilization fees are determined as a percentage of the outstanding facility. If it is unlikely that a specific lending arrangement will be entered into, such fees are taken to net income over the life of the facility otherwise they are deferred and included in the effective interest rate on the advance. Fees in respect of services are recognized as the right to consideration accrues through the provision of the service to the customer. The arrangements are generally contractual and the cost of providing the service is incurred as the service is rendered. The price is usually fixed and determinable. Credit card fees include commission received from merchants for processing credit card transaction and annual fees received from credit card holders. Revenue from the commission is accrued to net income when the service performed and annual fee is deferred and recognized as income over the period of the service provided. 4) Trust fees and compensation related to trust accounts The Group receives fees for its management of unconsolidated trust assets, which are recognized on an accrual basis when the management services are provided and earned. The Group also is entitled to receive performance-based fees for certain trust accounts. These performance-based fees are recognized at the end of the performance period. In addition, a certain trust account which the Group guarantees to repay the principals and minimum interests of the trust account to its beneficiaries shall be included in the consolidated financial statements. The Group recognizes incomes when earned and expenses when interests to be paid to beneficiaries are accrued. (7) Accounting for foreign currencies The Group’s consolidated financial statements are presented in Korean Won, which is the functional currency of the Bank. At the end of each reporting period, monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at its prevailing exchange rates at the date. Foreign exchange differences on monetary items that qualify as hedging instruments in a cash flow hedge or that form part of net investment in foreign operations are recognized in equity. A monetary available-for-sale (“AFS”) financial asset is treated as if it were carried at amortized cost in the foreign currency. Accordingly, for such financial assets, exchange differences resulting from retranslating amortized cost are recognized in net income. Non-monetary items denominated in foreign currencies that are stated at fair value are translated into Korean Won at foreign exchange rates at the dates the values were determined. Translation differences arising on non- monetary items measured at fair value are recognized in net income except for differences arising on non- monetary AFS financial assets, for example equity shares, which are included in the AFS reserve in equity unless the asset is the hedged item in a fair value hedge. The Group identifies the most appropriate functional currency for each foreign operation based on the foreign operation’s activities. If Korean Won is not the foreign operation’s functional currency, its assets and liabilities, including goodwill and fair value adjustments arising on acquisition, are translated into Korean Won at foreign exchange rates at the end of each reporting date while the revenues and expenses are translated into Korean Won at average exchange rates for the period unless these do not approximate to the foreign exchange rates at the dates of the transactions. Foreign exchange differences arising on the translation of a foreign operation are recognized directly in equity and included in net income on its disposal. - 16 - Woori Bank Annual Report 2014 123 (8) Cash and cash equivalents Cash and cash equivalents consist of cash on hand, demand deposits, interest-earning deposits with original maturities of up to 90 days of acquisition date and highly liquid investment assets that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. (9) Financial assets and financial liabilities 1) Financial assets A regular way purchase or sale of financial assets is recognized or derecognized on the trade or settlement date. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose term requires delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. On initial recognition, financial assets are classified into held-for-trading, designated as at fair value through profit or loss (“FVTPL”), AFS financial assets, held-to-maturity (“HTM”) investments and loans and receivables. Held-for-trading: A financial asset is classified as held-for-trading if it is acquired principally for sale in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative (not in a qualifying hedge relationship). Held-for-trading financial assets are recognized at fair value with transaction costs being recognized in net income. Subsequently they are measured at fair value. Gains and losses on held-for-trading financial assets are recognized in net income as they arise. Designated as at FVTPL: Financial assets may be designated as at FVTPL only if such designation (a) eliminates or significantly reduces a measurement or recognition inconsistency; (b) applies to a group of financial assets, financial liabilities or both, which is managed and performance is evaluated on a fair value basis; or (c) is related to a contract containing one or more embedded derivative that would be required to be separated from the host contract. Financial assets designated by the Group on initial recognition as at FVTPL are recognized at fair value, with transaction costs recognized in net income, and are subsequently measured at fair value. Gains and losses on financial assets that are designated as at FVTPL are recognized in net income as they arise. AFS financial assets: Financial assets that are not classified as HTM; held-for-trading; designated as at FVTPL; or loans and receivables, are classified as AFS. Financial assets can be designated as AFS on initial recognition. AFS financial assets are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at fair value. Unquoted equity investments whose fair value cannot be measured reliably are carried at cost and classified as AFS financial assets. Impairment losses in monetary and non- monetary AFS financial assets and dividends on non-monetary financial assets are recognized in net income. Interest revenue on monetary financial assets is calculated using the effective interest method. Other changes in the fair value of AFS financial assets and any related tax are reported in a separate component of shareholders' equity until disposal, when the cumulative gain or loss is recognized in net income. HTM investments: A financial asset may be classified as a HTM investment only if it has fixed or determinable payments, a fixed maturity, and the Group has the positive intention and ability to hold the financial asset to maturity. HTM investments are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses. Loans and receivables: Non-derivative financial assets with fixed or determinable repayments that are not quoted in an active market are classified as loans and receivables, except those that are classified as AFS or as held-for-trading, - 17 - Strength in Our ValueS124 or designated as at FVTPL. Loans and receivables are initially recognized at fair value plus directly related transaction costs. They are subsequently measured at amortized cost using the effective interest method less any impairment losses. Interest income is recognized using the effective interest method, except for the short-term receivables to which the present value discount is not meaningful. 2) Financial liabilities On initial recognition financial liabilities are classified into held-for-trading; designated as at FVTPL; or amortized cost. Held-for-trading: A financial liability is classified as held-for-trading if it is incurred principally for repurchase in the near term, or forms part of a portfolio of financial instruments that are managed together and for which there is evidence of short-term profit taking, or it is a derivative (not in a qualifying hedge relationship). Held-for- trading financial liabilities are recognized at fair value with transaction costs being recognized in net income. Subsequently, they are measured at fair value. Gains and losses are recognized in net income as they arise. Designated as at FVTPL: Financial liabilities may be designated as at FVTPL only if such designation (a) eliminates or significantly reduces a measurement or recognition inconsistency; (b) applies to a group of financial liabilities or both that the Group manages and evaluates on a fair value basis; or (c) relates to an instrument that contains an embedded derivative which is not evidently closely related to the host contract. Financial liabilities that the Group designates on initial recognition as being at FVTPL are recognized at fair value, with transaction costs being recognized in net income, and are subsequently measured at fair value. Gains and losses on financial liabilities that are designated as at FVTPL are recognized in net income as they arise. Amortized cost: All other financial liabilities are measured at amortized cost using the effective interest method. 3) Reclassifications Held-for-trading and AFS financial assets that meet the definition of loans and receivables (non-derivative financial assets with fixed or determinable payments that are not quoted in an active market) may be reclassified to loans and receivables if the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The Group typically regards the foreseeable future as twelve months from the date of reclassification. Reclassifications are made at fair value. This fair value becomes the asset's new cost or amortized cost as appropriate. Gains and losses recognized up to the date of reclassification are not reversed. 4) Derecognition of financial assets and liabilities The Group derecognizes a financial asset when the contractual right to the cash flows from the asset is expired, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another company. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulated gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss. On derecognition of a financial assets other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset, or it retains a residual interest and such an retained interest indicates that the transferor has neither transferred nor retained substantially all the risks and rewards of ownership and has retained control of the transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no - 18 - Woori Bank Annual Report 2014125 longer recognizes on the basis of the relative fair value of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part that is no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair value of those parts. The Group derecognizes the financial liability, when Group's obligations are discharged, canceled or expired. The difference between paid cost and the carrying amount of financial liabilities is recorded in profit or loss. 5) Fair value of financial assets and liabilities Financial instruments classified as held-for-trading or designated as at FVTPL and financial assets classified as AFS are recognized in the financial statements at fair value. All derivatives are measured at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in and orderly transaction between market participants at the measurement date. Fair values are determined from quoted prices in active markets for identical financial assets or financial liabilities where these are available. The Group characterizes active markets as those in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Where a financial instrument is not in active market characterized by low transaction volumes, price quotations which vary substantially among market participants, or in which minimal information is released publicly, fair values are established using valuation techniques rely on alternative market data or internally developed models using significant inputs that are generally readily observable from objective sources. Market data includes prices of financial instruments with similar maturities and characteristics, duration, interest rate yield curves, and measures of volatility. The amount determined to be fair value may incorporate the management of the Group’s own assumptions (including assumptions that the Group believes market participants would use in valuing the financial instruments and assumptions relating to appropriate risk adjustments for nonperformance and lack of marketability). The valuation techniques used to estimate the fair value of the financial instruments include market approach and income approach, each of which involves a significant degree of judgment. Under the market approach, fair value is determined by reference to a recent transaction involving the financial instruments or by reference to observable valuation measures for comparable companies or assets. Under the income approach, fair value is determined by converting future amounts (e.g., cash flows or earnings) to a single present amount (discounted) using current market expectations about the future amounts. In determining value under this approach, the Group makes assumptions regarding, among other things, revenues, operating income, depreciation and amortization, capital expenditures, income taxes, working capital needs, and terminal value of the financial investments. These valuation techniques involve a degree of estimation, the extent of which depends on the instrument’s complexity and the availability of market-based data. The following are descriptions of valuation methodologies used by the Group to measure various financial instruments at fair value. Financial assets at FVTPL and AFS financial assets: The fair value of the securities included in financial assets at FVTPL and AFS financial assets are recognized in the consolidated statements of financial position based on quoted market prices, where available. For debt securities traded in the OTC market, the Group generally determines fair value based on prices obtained from independent pricing services. Specifically, with respect to independent pricing services, the Group obtains three prices per instrument from reputable independent pricing services in Korea, such as Korea Asset Pricing (an affiliate of Fitch Ratings), KIS Pricing (an affiliate of Moody’s Investors Service) and NICE Pricing Service, and generally uses the lowest of the prices obtained from such services without further adjustment. For non-marketable equity securities, the Group obtains prices - 19 - Strength in Our ValueS126 from Korea Asset Pricing. The Group validates prices received from such independent pricing services using a variety of means, including verification of the qualification of the independent pricing services, corroboration of the pricing by comparing the prices among the independent pricing services and by reference to other available market data, and review of the pricing model and assumptions used by the independent pricing services by the Group’s personnel who are familiar with market-related conditions. Derivative assets and liabilities: Quoted market prices are used for the Group’s exchange-traded derivatives, such as certain interest rate futures and option contracts. All of the Group’s derivatives are traded in OTC markets where quoted market prices are not readily available are valued using internal valuation techniques. Valuation techniques and inputs to internally developed models depend on the type of derivative and nature of the underlying rate, price or index upon which the derivative’s value is based. If the model inputs for certain derivatives are not observable in a liquid market, significant judgments on the level of inputs used for valuation techniques are required. Valuation Adjustments: By using derivatives, the Group is exposed to credit risk if counterparties to the derivative contracts do not perform as expected. If counterparty fails to perform, counterparty credit risk is equal to the amount reported as a derivative asset in the consolidated statements of financial position. The amounts reported as a derivative asset are derivative contracts in a gain position. Few of the Group’s derivatives are listed on an exchange. The majority of derivative positions are valued using internally developed models that use as their basis observable market inputs. Therefore, an adjustment is necessary to reflect the credit quality of each counterparty to arrive at fair value. Counterparty credit risk adjustments are applied to derivative assets, such as OTC derivative instruments, when the market inputs used in valuation models may not be indicative of the creditworthiness of the counterparty. Adjustments are also made when valuing financial liabilities to reflect the Group’s own credit standing. The adjustment is based on probability of default of a counterparty and loss given default. The adjustment also takes into account contractual factors designed to reduce the Group’s credit exposure to each counterparty. To the extent derivative assets (liabilities) are subject to master netting arrangements, the exposure used to calculate the credit risk adjustment is net of derivatives in a loss (gain) position with the same counterparty and cash collateral received (paid). 6) Impairment of the financial assets The Group assesses at the end of each reporting date whether there is any objective evidence that a financial asset or group of financial assets classified as AFS, HTM or loans and receivables is impaired. A financial asset or portfolio of financial assets is impaired and an impairment loss incurred if there is objective evidence of impairment as result of one or more events that occurred after the initial recognition asset and that event (or events) has an impact on the estimated future cash flows of the financial asset. Financial assets carried at amortized cost: If there is objective evidence that an impairment loss on a financial asset or group of financial assets classified as HTM investments or as loans and receivables has been incurred, the Group measures the amount of the loss as the difference between the carrying amount of the asset or group of assets and the present value of estimated future cash flows from the asset or group of assets discounted at the effective interest rate of the instrument at initial recognition. For collateralized loans and receivables, estimated future cash flows include cash flows that may result from foreclosure less the costs of obtaining and selling the collateral. Impairment losses are assessed individually for financial assets that are individually significant and assessed either individually or collectively for assets that are not individually significant. In making collective assessment of impairment, financial assets are grouped into portfolios on the basis of similar risk characteristics. Future cash flows from these portfolios are estimated on the basis of the contractual cash flows and historical loss experience for assets with similar credit risk characteristics. Historical loss experience is adjusted, on the basis of observable data, to reflect current conditions not affecting the period of historical experience. - 20 - Woori Bank Annual Report 2014127 Impairment losses are recognized in net income and the carrying amount of the financial asset or group of financial assets reduced by establishing a provision for impairment losses. If, in a subsequent period, the amount of the impairment loss reduces and the reduction can be ascribed to an event after the impairment was recognized, the previously recognized loss is reversed by adjusting the provision. Once an impairment loss has been recognized on a financial asset or group of financial assets, interest income is recognized on the carrying amount using the rate of interest at which estimated future cash flows were discounted in measuring impairment. It is not the Group’s usual practice to write-off the asset at the time an impairment loss is recognized. Impaired loans and receivables are written off (i.e. the impairment provision is applied in writing down the loan's carrying value in full) when the Group concludes that there is no longer any realistic prospect of recovery of part or the entire loan. Amounts recovered after a loan has been written off are reflected to the provision for the period in which they are received. Financial assets carried at fair value: When a decline in the fair value of a financial asset classified as AFS has been recognized directly in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss is removed from other comprehensive income and recognized in net income. The loss is measured as the difference between the amortized cost of the financial asset and its current fair value. Impairment losses on AFS equity instruments are not reversed through net income, but those on AFS debt instruments are reversed, if there is a decrease in the cumulative impairment loss that is objectively related to a subsequent event. (10) Offsetting financial instruments Financial assets and liabilities are presented in net in the consolidated statements of financial position when the Group has an enforceable legal right to set off and an intention to settle on a net basis or to realize an asset and settle the liability simultaneously. (11) Investment properties The Group classifies a property held to earn rentals and/or for capital appreciation as an investment property. Investment properties are measured initially at cost, including transaction costs, less subsequent depreciation and impairment. Subsequent costs are included in the carrying amount of the asset or recognized as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred. While land is not depreciated, all other investment properties are depreciated based on the respective assets’ estimated useful lives using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any change in estimate accounted for on a prospective basis. An investment property is derecognized from the consolidated financial statements on disposal or when it is permanently withdrawn from use and no future economic benefits are expected even from its disposal. The gain or loss on derecognition of an investment property is calculated as the difference between the net disposal proceeds and the carrying amount of the property and is recognized in profit or loss in the period of the derecognition. (12) Premises and equipment Premises and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses. The cost of an item of premises and equipment is directly attributable to their purchase or construction, which includes any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. It also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. - 21 - Strength in Our ValueS128 Subsequent costs to replace part of the premises and equipment are recognized in carrying amount of an asset or as an asset if it is probable that the future economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured reliably. Routine maintenance and repairs are expensed as incurred. While land is not depreciated, for all other premises and equipment, depreciation is charged to net income on a straight-line basis on the estimated economic useful lives as follows: Buildings used for business purpose Structures in leased office Properties for business purpose Leased assets Useful life 35 to 57 years 4 to 5 years 4 to 5 years Useful lives of the same kind or similar other premises and equipment The Group reassesses the depreciation method, the estimated useful lives and residual values of premises and equipment at the end of each reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate. When the carrying amount of a fixed asset exceeds the estimated recoverable amount, the carrying amount of such asset is reduced to the recoverable amount. (13) Intangible assets and goodwill Intangible assets are stated at the manufacturing cost or acquisition cost plus additional incidental expenses less accumulated amortization and accumulated impairment losses. The Group’s software and industrial property right (trademark) are amortized over five years using the straight-line method. The estimated useful life and amortization method are reviewed at the end of each reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate. Patents Development costs Software and others Useful life 10 years 5 years 4 to 5 years In addition, when an indicator that intangible assets are impaired is noted, and the carrying amount of the asset exceeds the estimated recoverable amount of the asset, the carrying amount of the asset is reduced to its recoverable amount immediately. Goodwill acquired in a business combination is included in intangible assets. Goodwill is not amortized but tested for impairment annually to the extent of reporting unit and when there is any indication of impairment. Goodwill acquired is allocated to each of the Group’s cash-generating units (“CGU”) expected to benefit from the synergies of the combination. A CGU to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the CGU may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to the other assets of the CGU on a pro-rata basis based on the carrying amount of each asset in the CGU. Any impairment loss for goodwill is recognized directly in net income in the consolidated statements of comprehensive income. An impairment loss recognized for goodwill is not reversed in subsequent periods. (14) Impairment of non-monetary assets Intangible assets with indefinite useful lives or intangible assets that are not yet available for use are tested for impairment annually, regardless of whether or not there is any indication of impairment. All other assets are tested for impairment when there is an objective indication that the carrying amount may not be recoverable, and if the indication exists. The Group estimates the recoverable amount. Recoverable amount is the higher of value in use and net fair value less costs to sell. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and such impairment loss is recognized immediately in net income. - 22 - Woori Bank Annual Report 2014 129 (15) Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 1) As a lessor Amounts due from lessees under finance leases are recognized as receivables at the amount of the Group’s net investment in the leases being the minimum lease payments and any unguaranteed residual value discount interest rate implicit in the lease. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term. Operating lease assets are included within premise and equipment and depreciated over their useful lives. 2) As a lessee Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statements of financial position as a finance lease obligation. Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Contingent rentals arising under finance leases are recognized as expenses in the periods in which they are incurred. Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as expenses in the period in which they are incurred. (16) Derivative instruments Derivative instruments are classified as forward, futures, option, and swap, depending on the types of transactions and are classified as either trading or hedging if they are qualified for hedge accounting. Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently measured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in net income immediately unless the derivative is designated and effective as a hedging instrument. A derivative embedded in a contract is accounted for as a stand-alone derivative if its economic characteristics are not closely related to the economic characteristics of the host contract; unless the entire contract is measured at fair value with changes in fair value recognized in net income. The Group designates certain hedging instruments to (a) hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment (fair value hedge); (b) hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction (cash flow hedge); and (c) hedge of a net investment in a foreign operation. At the inception of the hedge relationship, the Group documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item. 1) Fair value hedge Changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in net income immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge accounting is discontinued when the Group revokes - 23 - Strength in Our ValueS130 the hedging relationship or when the hedging instrument is no longer qualified for hedge accounting. The fair value adjustment to the carrying amount of the hedged item is amortized to net income from that date to maturity using the effective interest method. 2) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in net income. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to net income when the hedged item is recognized in net income. Hedge accounting is discontinued when the hedging instrument is expired or sold, or it is no longer qualified for hedge accounting, and any cumulative gain or loss in other comprehensive income remains in equity until the forecast transaction is ultimately recognized in net income. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in net income. 3) Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. The effective portion of changes in the fair value of the hedging instrument is recognized in equity while the ineffective portion is recognized immediately in net income. The cumulated gain and loss in other comprehensive income is reclassified from equity to profit or loss on the disposal or partial disposal of the foreign operations. (17) Assets (or Disposal group) held for sale The Group classifies a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this, the non-current asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. When the Group is committed to a sale plan involving disposal of an investment, or a portion of an investment, in an associate or joint venture, the investment or the portion of the investment that will be disposed of is classified as held for sale when the criteria described above are met, and the Group discontinues the use of the equity method in relation to the portion that is classified a held for sale. Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale continues to be accounted for using the equity method. The Group discontinues the use of the equity method at the time of disposal when the disposal results in the Group losing significant influence over the associate or joint venture. After the disposal takes place, the Group accounts for any retained interest in the associate or joint venture in accordance with K-IFRS 1039 Financial Instruments: Recognition and Measurement unless the retained interest continues to be an associate or a joint venture, in which case the Group uses the equity method. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. - 24 - Woori Bank Annual Report 2014131 (18) Disposal group held for distribution to owners A disposal group is classified as held for distribution to owners when the Group is committed to distribute the disposal group to the owners. For this to be the case the assets must be available for immediate distribution in their present condition and the distribution must be highly probable. For the distribution to be highly probable, actions to complete the distribution must have been initiated and should be expected to be completed within one year from the date of classification. When a subsidiary is determined as held for distribution to owners and that will result in the loss of control, all the assets and liabilities of the subsidiary shall be classified as held for distribution to owners regardless of retaining the non-controlling interest of the subsidiary. The Group measures disposal group classified as held for distribution to owners at the lower of its carrying amount and fair value less costs to distribute. (19) Provisions The Group recognizes provision if it has a present or contractual obligations as a result of the past event, it is probable that an outflow of resources will be required to settle the obligation, and the amount of the obligation is reliably estimated. Provision is not recognized for the future operating losses. The Group recognizes provision related to the unused portion of point rewards earned by credit card customers, payment guarantees, loan commitment and litigations. Where the Group is required to restore a leased property that is used as a branch, to an agreed condition after the contractual term expires, the present value of expected amounts to be used to dispose, decommission or repair the facilities is recognized as an asset retirement obligation. Where there are a number of similar obligations, the probability that an outflow will be required in settlement is determined by considering the obligations as a whole. Although the likelihood of outflow for any one item may be small, if it is probable that some outflow of resources will be needed to settle the obligations as a whole, a provision is recognized. (20) Capital and compound financial instruments The Group classifies a financial instrument that it issues as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. An instrument is classified as a liability if it is a contractual obligation to deliver cash or another financial asset, or to exchange financial assets or financial liabilities on potentially unfavorable terms. An instrument is classified as equity if it evidences a residual interest in the assets of the Group after the deduction of liabilities. The components of a compound financial instrument issued by the Group are classified and accounted for separately as financial liabilities or equity as appropriate. The Group recognizes common stock as equity and redeemable preferred stocks as a liability. Direct expenses related to the issuance of new shares or options are recognized as a deduction from equity, net of any tax effects. If the Group reacquires its own equity instruments, those instruments (“treasury shares”) are presented as a deduction from total equity. The gain or loss on the purchase, sale, issue, or cancellation of treasury shares is not recognized in net income but recognized directly in equity. (21) Financial guarantee contracts Under a financial guarantee contract, the Group, in return for a fee, undertakes to meet a customer’s obligations under the terms of a debt instrument if the customer fails to do so. A financial guarantee is recognized as a liability; initially at fair value and, if not designated as at FVTPL, subsequently at the higher of its initial value less cumulative amortization and any provision under the contract measured in accordance with provision policy. Amortization is calculated so as to recognize fees receivable in net income over the period of the guarantee. - 25 - Strength in Our ValueS132 (22) Employee benefits and pensions The Group recognizes the undiscounted amount of short-term employee benefits expecting payment in exchange for the services, when employee renders services. Also, the Group recognizes expenses and liabilities in the case of accumulating compensated absences, when the employees render service that increases their entitlement to future compensated absences. Though the Group may have no legal obligation to pay a bonus, considering some cases, the Group has a practice of paying bonuses. In such cases, the Group has a constructive obligation, and thus recognizes expenses and liabilities when the employees render service. The Group is operating defined contribution retirement pension plans and defined benefit retirement pension plans. Contributions to defined contribution retirement pension plans are recognized as an expense when employees have rendered service entitling them to the contributions. For defined benefit retirement pension plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement, comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on plan assets (excluding interest), is reflected immediately in the statement of financial position with a charge or credit recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset. Defined benefit costs are composed of service cost (including current service cost, past service cost, as well as gains and losses on curtailments and settlements), net interest expense (income), and remeasurement. The Group presents the service cost and net interest expense (income) components in profit or loss, and the remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past service costs. The retirement benefit obligation recognized in the consolidated statement of financial position represents the actual deficit or surplus in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans. Liabilities for termination benefits are recognized at the earlier of either 1) when the Group has become not able to cancel its proposal for termination benefits, or 2) when the Group has recognized the cost of restructuring that accompanies the payment of termination benefits. (23) Income taxes Income tax expense represents the sum of the tax currently payable and deferred tax. Current income tax expense approximates taxes to be paid or refunded for the current period and deferred income tax expense is provided on an asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, including operating losses and tax credit carryforwards, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the carrying values of assets and liabilities for financial reporting purposes and their tax bases. Deferred income tax benefit or expense is then recognized for the change in deferred tax assets or liabilities between periods. Deferred tax assets and liabilities are measured at the tax rates on the date of enactment or substantive enactment that are expected to apply in the period in which the liability is settled or the asset realized. Deferred tax assets, including the carryforwards of unused tax losses, are recognized to the extent it is probable that the deferred tax assets will be realized. Deferred income tax assets and liabilities are offset if, and only if the Group has a legally enforceable right to offset current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. - 26 - Woori Bank Annual Report 2014133 Deferred liabilities are not recognized if the temporary difference arises from goodwill. Deferred tax assets or liabilities are not recognized if they arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. (24) Earnings per share (“EPS”) Basic EPS is calculated by earnings subtracting the dividends paid to holders of preferred stock and hybrid securities from the net income attributable to ordinary shareholders from the statements of comprehensive income and dividing by the weighted average number of common shares outstanding. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential common shares. 3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS – PLEASE REFER TO THE FULL VERSION OF INDEPENDENT AUDITORS’ REPORT 4. RISK MANAGEMENT – PLEASE REFER TO THE FULL VERSION OF INDEPENDENT AUDITORS’ REPORT 5. OPERATING SEGMENTS In evaluating the results of the Group and allocating resources, the Group’s Chief Operation Decision Maker (the “CODM”) utilizes the information per types of customers. This financial information of the segments is regularly reviewed by the CODM to make decisions about resources to be allocated to each segment and evaluate its performance. (1) Segment by types of customers The Group’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market, and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided. Meanwhile, during the year ended at December 31, 2014, the spin-off of Kyongnam Bank and Kwangju Bank was completed and the disposals of Woori Investment & Securities Co., Ltd, Woori Financial, Woori F&I, Woori Asset Management, and Woori Savings Bank were closed in accordance with the progress of the privatization of Woori Finance Holdings Co., Ltd. Accordingly, the composition of operating segments has changed, and the Group restated the comparative operating segment information for the year ended and as of December 31, 2013. • Consumer banking: Loans/deposits and financial services for consumer, etc. • Corporate banking: Loans/deposits and export/import, financial services for corporations, etc. • Investment banking: Domestic/foreign investment, structured finance, M&A, Equity & fund investment related business, venture advisory related tasks, real estate SOC development practices etc. • Capital market: Fund management, investment securities and derivatives business, etc.; and • Headquarter and others: Segments that are not belong to above operating segments 1) The details of assets and liabilities by each segment are as follows (Unit: Korean Won in millions): Corporate banking Assets 96,644,808 Liabilities 47,625,472 145,999,344 Consumer banking 83,582,893 Investment banking 6,411,016 136,603 Capital market 6,076,739 4,957,708 Others Sub-total 82,415,399 275,130,855 51,283,487 250,002,614 Inter-segment transaction (4,973,636) 270,157,219 2,061,180 252,063,794 Total December 31, 2014 December 31, 2013 - 27 - Strength in Our ValueS Deferred liabilities are not recognized if the temporary difference arises from goodwill. Deferred tax assets or liabilities are not recognized if they arise from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. (24) Earnings per share (“EPS”) Basic EPS is calculated by earnings subtracting the dividends paid to holders of preferred stock and hybrid securities from the net income attributable to ordinary shareholders from the statements of comprehensive income and dividing by the weighted average number of common shares outstanding. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects of all dilutive potential common shares. 3. SIGNIFICANT ACCOUNTING ESTIMATES AND ASSUMPTIONS – PLEASE REFER TO THE FULL VERSION OF INDEPENDENT AUDITORS’ REPORT 4. RISK MANAGEMENT – PLEASE REFER TO THE FULL VERSION OF INDEPENDENT AUDITORS’ REPORT In evaluating the results of the Group and allocating resources, the Group’s Chief Operation Decision Maker (the “CODM”) utilizes the information per types of customers. This financial information of the segments is regularly reviewed by the CODM to make decisions about resources to be allocated to each segment and 5. OPERATING SEGMENTS evaluate its performance. (1) Segment by types of customers The Group’s reporting segments comprise the following customers: consumer banking, corporate banking, investment banking, capital market, and headquarters and others. The reportable segments are classified based on the target customers for whom the service is being provided. Meanwhile, during the year ended at December 31, 2014, the spin-off of Kyongnam Bank and Kwangju Bank was completed and the disposals of Woori Investment & Securities Co., Ltd, Woori Financial, Woori F&I, Woori Asset Management, and Woori Savings Bank were closed in accordance with the progress of the privatization of Woori Finance Holdings Co., Ltd. Accordingly, the composition of operating segments has changed, and the Group restated the comparative operating segment information for the year ended and as of December 31, 2013. 134 • Consumer banking: Loans/deposits and financial services for consumer, etc. • Corporate banking: Loans/deposits and export/import, financial services for corporations, etc. • Investment banking: Domestic/foreign investment, structured finance, M&A, Equity & fund investment related business, venture advisory related tasks, real estate SOC development practices etc. • Capital market: Fund management, investment securities and derivatives business, etc.; and • Headquarter and others: Segments that are not belong to above operating segments 1) The details of assets and liabilities by each segment are as follows (Unit: Korean Won in millions): Corporate banking 96,644,808 Assets Liabilities 47,625,472 145,999,344 Consumer banking 83,582,893 Investment banking 6,411,016 136,603 Capital market 6,076,739 4,957,708 Others Sub-total 82,415,399 275,130,855 51,283,487 250,002,614 Inter-segment transaction (4,973,636) 270,157,219 2,061,180 252,063,794 Total December 31, 2014 Corporate banking Assets 89,900,968 Liabilities 45,336,744 135,083,652 Consumer banking 74,305,224 Investment banking 7,038,975 105,146 Capital market 10,778,521 10,006,252 - 27 - Sub-total Others 95,589,309 277,612,997 48,783,007 239,314,801 Inter-segment transaction (21,919,713) 255,693,284 (431,228) 238,883,573 Total (*) December 31, 2013 (*) The amounts exclude assets and liabilities from the subsidiaries that were reclassified into disposal group held for sale and disposal groups held for distribution to owners as of December 31, 2013. - 28 - Woori Bank Annual Report 2014 135 2) The details of operating income by each segment are as follows (Unit: Korean Won in millions): For the year ended December 31, 2014 Corporate Consumer banking banking 1,741,700 1,392,354 3,032,488 3,636,838 (1,591,087) (2,191,770) 296,632 453,799 438,879 (14,483) 29,403 (1,759,431) (1,522,783) (835,051) (1,700,025) (49,047) 493,762 724,288 (250,450) 19,924 Investment banking 1,178 199,629 (23) (198,428) 65,919 348,363 (282,444) - (175,002) (14,385) Capital market 28,884 26,076 (100) 2,908 (8,059) 3,969,660 (3,977,719) - (10,273) (16,437) Others 835,588 1,987,901 (1,100,248) (52,065) 348,495 2,951,569 (2,553,747) (49,327) (800,128) (626,874) Sub-total 3,999,704 8,882,932 (4,883,228) - 1,353,916 8,432,759 (7,078,843) - (4,267,617) (3,192,772) Inter- segment transaction 493,314 328,308 165,006 - (941,404) (284,209) (657,195) - 259,795 233,853 Continuing operation (*) 4,493,018 9,211,240 (4,718,222) - 412,512 8,148,550 (7,736,038) - (4,007,822) (2,958,919) (59,406) 126,685 (15,444) (687,732) 672,716 (3,309) (160,617) (107,905) 39,967 6,164 10,552 (20,562) (173,254) 383,955 1,585,917 (1,074,845) 1,086,003 1,586,569 25,942 (188,295) (1,649,882) (1,048,903) 897,708 (63,313) 111,241 (26,920) 669,407 (153,867) (67,938) 16,441 (10,010) 2,422 1,969,872 (126,271) 2,672,572 (288,195) (1,838,177) - 834,395 (288,195) 84,321 515,540 (51,497) (7,588) 1,843,601 2,384,377 (1,838,177) 546,200 For the year ended December 31, 2013 Consumer banking 1,505,372 3,233,552 (1,653,013) (75,167) 415,665 645,404 (244,085) 14,346 (1,761,891) (1,643,064) Corporate banking 1,947,049 3,832,238 (2,282,674) 397,485 443,767 518,355 (100,033) 25,445 (2,414,374) (831,660) Investment banking 19,654 256,860 (717) (236,489) 67,883 401,904 (334,021) - (156,006) (17,458) Capital market 60,146 82,649 (29,121) 6,618 (7,323) 4,849,598 (4,856,921) - (39,556) (21,744) Others 670,436 1,925,391 (1,162,508) (92,447) 527,591 3,522,324 (2,954,942) (39,791) (853,418) (585,650) Sub-total 4,202,657 9,330,690 (5,128,033) - 1,447,583 9,937,585 (8,490,002) - (5,225,245) (3,099,576) Inter- segment transaction 289,365 162,693 126,672 - (575,124) (100,430) (474,694) - 100,331 197,405 Continuing operation (*) 4,492,022 9,493,383 (5,001,361) - 872,459 9,837,155 (8,964,696) - (5,124,914) (2,902,171) (118,827) (1,582,714) (23,558) 159,146 (10,787) (14,340) (138,548) (68,469) 38,464 (17,812) 13,267 34,367 (267,768) 344,609 1,662,180 (2,125,669) 424,995 1,709,884 (97,074) (185,428) (1,661,784) (2,222,743) 239,567 48,100 144,806 (35,043) (34,345) 8,311 (30,005) 7,261 47,634 (11,527) 2,006,789 (485,643) 2,134,879 (516,641) (1,847,212) 481,545 287,667 (35,096) 109,763 (26,034) (22,744) 36,107 1,521,146 1,618,238 (1,365,667) 252,571 Net Interest income Interest income Interest expense Inter-segment Net non-interest income Non-interest income Non-interest expense Inter-segment Other expense Administrative expense Impairment losses on credit loss and others Operating income Non-operating income Net income before income tax expense Income tax expense Net income from continuing operations Net Interest income Interest income Interest expense Inter-segment Net non-interest income Non-interest income Non-interest expense Inter-segment Other expense Administrative expense Impairment losses on credit loss and others Operating income Non-operating income Net income before income tax expense Income tax expense Net income from continuing operations (*) The amounts exclude income or loss from the subsidiaries that were reclassified into disposal group held for sale and disposal groups held for distribution to owners for the years ended December 31, 2014 and 2013. (2) Information on products and services The products of the Group are classified as interest-bearing products such as loans, deposits and debt securities and non-interest bearing products such as loan commitment, credit commitment, equity securities, and credit card service. This classification of products has been reflected in the segment information presenting interest income and non-interest income. - 29 - Strength in Our ValueS 136 (3) Information on geographical areas Of the Group’s revenue (interest income and non-interest income) from services, revenue from the domestic customers for the years ended December 31, 2014 and 2013 amounted to 16,800,282 million Won and 18,466,386 million Won, respectively, and revenue from the foreign customers amounted to 559,508 million Won and 864,152 million Won, respectively (including the profit and losses that are reclassified to the discontinued operations). Of the Group’s non-current assets (investments in joint ventures and associates, investment properties, premises and equipment and intangible assets), non-current assets attributed to domestic subsidiaries as of December 31, 2014 and 2013 are 3,591,351 million Won and 3,730,455 million Won, respectively, and foreign subsidiaries are 211,465 million Won and 33,102 million Won, respectively. 6. CASH AND CASH EQUIVALENTS (1) Details of cash and cash equivalents are as follows (Unit: Korean Won in millions): Cash and checks Foreign currencies Demand deposits Fixed deposits Total December 31, 2014 2,597,984 585,728 2,017,798 761,351 5,962,861 December 31, 2013 2,218,818 511,487 2,083,087 664,257 5,477,649 (2) Significant transactions not involving cash inflows and outflows are as follows (Unit: Korean Won in millions): Changes in other comprehensive income (loss) due to valuation of AFS financial assets Changes in other comprehensive loss of investment in associates Changes in other comprehensive income (loss) of overseas business translation Changes in other comprehensive income (loss) due to remeasurement of the net defined benefit liability Changes in investments in associates due to equity swap and others Changes in unpaid dividends of hybrid equity securities 2014 2013 86,537 (2,974) (33,782) (6,375) 28,856 (51,999) (63,426) 6,915 176,661 7,547 20,517 7,372 - 30 - Woori Bank Annual Report 2014 137 7. FINANCIAL ASSETS AT FVTPL . (1) Financial assets at FVTPL consist of as follows (Unit: Korean Won in millions): Financial assets held for trading Financial assets designated at FVTPL Total December 31, 2014 December 31, 2013 4,792,305 13,892 4,806,197 4,536,918 17,262 4,554,180 (2) Financial assets held for trading are as follows (Unit: Korean Won in millions): Deposits: Deposits indexed to gold prices 13,816 9,299 December 31, 2014 December 31, 2013 Securities: Debt securities Korean treasury and government agencies Financial institutions Corporates Equity securities Beneficiary certificates CMA securities Others Derivatives instruments assets Sub-total Total 668,886 927,121 620,312 99,988 48,291 32,300 14,737 2,411,635 2,111,467 4,536,918 574,016 1,019,008 409,272 196,072 166,623 200,500 33,084 2,598,575 2,184,431 4,792,305 (3) Financial assets designated at FVTPL as follows (Unit: Korean Won in millions): Equity-linked securities Debt securities Equity securities Total December 31, 2014 December 31, 2013 - 2,676 11,216 13,892 6,066 - 11,196 17,262 - 31 - Strength in Our ValueS 138 8. AFS FINANCIAL ASSETS AFS financial assets are as follows (Unit: Korean Won in millions): Debt securities: Korean treasury and government agencies Financial institutions Corporates Asset-backed securities Foreign currency bonds Sub-total Equity securities Beneficiary certificates Loaned securities Others Total Debt securities: Korean treasury and government agencies Financial institutions Corporates Asset-backed securities Foreign currency bonds Sub-total Equity securities Beneficiary certificates Loaned securities Others Total December 31, 2014 Unrealized gains Unrealized losses Fair value 32,963 34,471 64,522 - - 131,956 432,068 20,689 1,982 17,308 604,003 (124) (357) - (13,572) (66,761) (80,814) (126,422) - (12) - (207,248) 3,171,580 6,731,461 2,827,250 157,741 298,900 13,186,932 1,421,374 3,452,611 686,096 63,832 18,810,845 December 31, 2013 Unrealized gains Unrealized losses Fair value 6,168 4,376 11,902 6,807 129 29,382 272,288 59,966 313 119 362,068 (15,105) (1,296) (4,806) (25,291) (752) (47,250) (36,327) (2,339) (178) - (86,094) 2,680,849 6,512,068 2,433,661 273,014 229,587 12,129,179 1,615,475 3,065,280 240,034 35,480 17,085,448 Book value 3,138,741 6,697,347 2,762,728 171,313 365,661 13,135,790 1,115,728 3,431,922 684,126 46,524 18,414,090 Book value 2,689,786 6,508,988 2,426,565 291,498 230,210 12,147,047 1,379,514 3,007,653 239,899 35,361 16,809,474 - 32 - Woori Bank Annual Report 2014 139 9. HTM FINANCIAL ASSETS HTM financial assets are as follows (Unit: Korean Won in millions): Korean treasury and government agencies Financial institutions Corporates Foreign currency bonds Total Korean treasury and government agencies Financial institutions Corporates Foreign currency bonds Total December 31, 2014 Unrealized gains Unrealized losses Fair value 82,979 37,400 106,092 - 226,471 (37) (175) (2,946) - (3,158) 4,211,286 4,426,817 4,573,443 56,215 13,267,761 December 31, 2013 Unrealized gains Unrealized losses Fair value 58,237 8,013 65,108 - 131,358 (16,900) (593) (6,361) - (23,854) 4,770,246 2,163,385 5,189,909 22,784 12,146,324 Book value 4,128,344 4,389,592 4,470,297 56,215 13,044,448 Book value 4,728,909 2,155,965 5,131,162 22,784 12,038,820 10. LOANS AND RECEIVABLES (1) Loans and receivables are as follows (Unit: Korean Won in millions): Due from banks Loans Other receivables Total December 31, 2014 December 31, 2013 10,208,117 190,699,210 11,005,046 211,912,373 11,100,572 204,818,820 7,450,743 223,370,135 (2) Due from banks are as follows (Unit: Korean Won in millions): Due from banks in local currency: Due from the Bank of Korea Due from depository banks Due from non-depository Due from the Korea Exchange Others Allowance for credit losses Sub-total Due from banks in foreign currencies: Due from banks on demand Due from banks on time Others Allowance for credit losses Sub-total Total December 31, 2014 December 31, 2013 9,120,180 1,000 277,337 1,580 182,750 (2,305) 9,580,542 312,022 712,972 497,454 (2,418) 1,520,030 11,100,572 8,304,869 4,127 22,418 880 18,744 (1,978) 8,349,060 920,713 439,595 500,766 (2,017) 1,859,057 10,208,117 - 33 - Strength in Our ValueS 140 (3) Details of restricted due from banks are as follows (Unit: Korean Won in millions): Financial institution Counterparty December 31, 2014 Reason of restriction Due from banks in local currency: Due from the Bank of Korea Others The Bank of Korea NH Investment & Securities Co., Ltd. and others Due from banks in foreign currencies: Due from banks on demand Others The Bank of Korea and others The Central Bank of China and others 9,120,180 Reverse deposits on BOK Act Treasury stock trust contracts 182,750 9,302,930 and others Reverse deposits on BOK Act 296,447 and others 469,974 Reserve deposits and others 766,421 10,069,351 Financial institution Counterparty December 31, 2013 (*) Reason of restriction Due from banks in local currency: Due from the Bank of Korea Due from depository banks Due from non-depository Due from the Korea Exchange Others The Bank of Korea Shinhan Bank and others Mutual savings bank Korea securities finance Corporation and others Shinhan Investment Corp. and others 9,581,701 Reverse deposits on BOK Act 625,693 Pledged right and others 20,524 Mutual savings bank act Deposits for futures and options 584,617 transactions and others 18,446 Collateral for derivatives 10,830,981 Due from banks in foreign currencies: Due from banks on demand Due from banks on time Others The Bank of Korea and others China Construction Bank Corporation and others The Central Bank of China and others Reverse deposits on BOK Act 941,284 and others Required under Chinese regulatory purpose 7,809 391,026 Reserve deposits and others 1,340,119 12,171,100 (*) The amounts incorporate the restricted due from banks from the subsidiaries that were reclassified into disposal group held for sale and disposal groups held for distribution to owners. (4) Loans are as follows (Unit: Korean Won in millions): Loans in local currency Loans in foreign currencies Domestic banker’s letter of credit Credit card accounts Bills bought in foreign currencies Bills bought in local currency Factoring receivables Advances for customers on guarantees Privately placed bonds Loans to be converted to equity securities Securitized loans Call loans Bonds purchased under resale agreements Loan origination costs and fees Others Present value discount Allowance for credit losses Total December 31, 2014 December 31, 2013 156,027,839 9,996,738 4,958,522 4,209,156 4,234,937 186,159 176,449 54,645 506,669 498 310,748 8,092,405 4,980,889 294,854 30,870 (24,995) (3,337,173) 190,699,210 167,261,592 11,281,016 5,712,049 5,113,684 5,552,421 258,707 92,205 52,619 346,284 498 295,506 4,174,735 6,891,629 367,898 44,378 (16,913) (2,609,488) 204,818,820 - 34 - Woori Bank Annual Report 2014 141 (5) Other receivables are as follows (Unit: Korean Won in millions): CMA accounts Receivables Accrued income Telex and telephone subscription rights and refundable deposits Other debtors Allowance for credit losses Total December 31, 2014 186,000 4,662,557 885,141 December 31, 2013 107,100 8,397,838 892,135 1,075,068 981,672 (339,695) 7,450,743 1,045,064 869,373 (306,464) 11,005,046 (6) Changes in allowance for possible credit losses on loans and receivables are as follows (Unit: Korean Won in millions): Beginning balance Net provision Recoveries of written-off loans Charge-off Sales of loans and receivables Unwinding effect Others Ending balance Beginning balance Net provision Recoveries of written-off loans Charge-off Sales of loans and receivables Unwinding effect Classified into disposal group held for sale Classified into disposal group held for distribution to owners Others Ending balance Consumers (295,904) (150,292) (7,976) 115,339 5,833 16,666 (10,101) (326,435) Consumers (327,168) (238,400) (41,847) 179,911 8,038 21,200 For the year ended December 31, 2014 Others (453,557) (15,937) - 627 5,676 223 92,704 (370,264) Credit card (105,613) (158,603) (27,920) 162,691 - 336 (8) (129,117) Corporates (2,792,558) (791,339) (66,627) 1,173,434 140,174 137,951 70,875 (2,128,090) For the year ended December 31, 2013 Others (432,778) (68,288) 891 2,034 147 499 Credit card (127,771) (137,174) (25,836) 172,257 14 530 Corporates (2,983,860) (2,178,951) (168,799) 1,625,220 152,792 140,863 Total (3,647,632) (1,116,171) (102,523) 1,452,091 151,683 155,176 153,470 (2,953,906) Total (3,871,577) (2,622,813) (235,591) 1,979,422 160,991 163,092 74,896 92,503 - 40,178 207,577 10,531 16,935 (295,904) 467,581 60,093 (2,792,558) 12,071 296 (105,613) 7,686 (3,926) (453,557) 497,869 73,398 (3,647,632) - 35 - Strength in Our ValueS 142 11. THE 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 Group 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 Group’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 and derivatives. • • Level 2— fair value measurements are those derived from inputs other than quoted prices included within Level 1 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 asset or liability 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 Group’s assessment of the significance of a particular input to a fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. - 36 - Woori Bank Annual Report 2014 143 (2) Fair value hierarchy of financial assets and liabilities measured at fair value are as follows (Unit: Korean Won in millions): December 31, 2014 Fair value in active market (Level 1) (*1) Observable market data (Level 2) (*1) Other valuation technique (Level 3) (*2) Financial assets: Financial assets held for trading Deposits Debt securities Equity securities Beneficiary certificates CMA securities Loaned securities Derivatives instruments assets Sub-total Financial assets designed at FVTPL Equity-linked securities Equity securities Sub-total AFS financial assets Debt securities Equity securities Beneficiary certificates Loaned securities Others Derivative assets Sub-total Total Financial liabilities: Financial liabilities held for trading Deposits Derivative liabilities Sub-total Financial liabilities designated at FVTPL Equity-linked securities Debentures Sub-total Total 13,816 587,593 99,988 - - 14,737 56 716,190 - 629 629 2,731,782 389,456 - 475,748 - 3,596,986 - 4,313,805 13,927 5,819 19,746 - - - 19,746 - 1,628,726 - 48,291 32,300 - 2,062,137 3,771,454 - - - 10,455,150 - 3,096,917 210,348 49,591 13,812,006 184,115 17,767,575 - 2,092,325 2,092,325 315 159,264 159,579 2,251,904 - - - - - - 49,274 49,274 6,066 10,567 16,633 - 1,031,918 355,694 - 14,241 1,401,853 11,946 1,479,706 - 41,711 41,711 361,993 - 361,993 403,704 Total 13,816 2,216,319 99,988 48,291 32,300 14,737 2,111,467 4,536,918 6,066 11,196 17,262 13,186,932 1,421,374 3,452,611 686,096 63,832 18,810,845 196,061 23,561,086 13,927 2,139,855 2,153,782 362,308 159,264 521,572 2,675,354 - 37 - Strength in Our ValueS 144 December 31, 2013 Fair value in active market (Level 1) (*1) Observable market data (Level 2) (*1) Other valuation technique (Level 3) (*2) Total Classified into disposal group held for sale Classified into disposal group held for distribution to owners 9,299 1,590,218 798,102 1,259,784 - 2,084,811 8,156 5,750,370 783,806 12,852,552 92,559 64,909 200,500 3,086,527 2,452,686 19,533,539 - 793,105 - 14,442,770 890,661 - 1,324,693 - 200,500 - 5,177,523 6,185 307,782 2,768,624 313,967 25,597,876 783,806 12,207,889 684,525 1,148,471 - 5,144,439 545,330 20,514,460 - - - 637 - 637 149,185 332,404 - - 61,696 543,285 408,120 - 2,676 10,579 - 421,375 557,305 332,404 2,676 11,216 61,696 965,297 525,855 - - - 61,696 587,551 - 232,585 10,064 9,599 - - 38,863 291,111 31,450 332,404 - - - 363,854 Total 9,299 2,002,296 196,072 166,623 200,500 33,084 2,184,431 4,792,305 - - 2,676 11,216 - 13,892 3,184,651 481,878 - 240,034 69,946 3,976,509 12,094,876 33,644 2,742,061 - 80,667 14,951,248 1,843,889 562,941 - 102,914 9,050 15,288,577 2,359,411 3,305,002 240,034 253,527 2,518,794 21,446,551 508,237 441,039 56,040 - 97,830 1,103,146 2,651,161 302,897 183,682 - 120,217 3,257,957 12,129,179 1,615,475 3,065,280 240,034 35,480 17,085,448 - 9,727,516 128,081 35,156,153 14,608 142,689 3,268,744 48,152,413 11,279 22,216,436 - 3,912,922 131,410 22,023,055 9,254 1,115,987 5,576 1,130,817 - - 2,514,838 2,514,838 - - 253,419 253,419 9,254 1,115,987 2,773,833 3,899,074 - 1,115,987 645,824 1,761,811 - - 31,962 31,962 9,254 - 2,096,047 2,105,301 - - - 2,897,882 183,159 3,081,041 5,587,261 - 5,587,261 8,485,143 183,159 8,668,302 8,266,355 - 8,266,355 - - - 218,788 183,159 401,947 Financial assets: Financial assets held for trading Deposits Debt securities Equity securities Beneficiary certificates CMA securities Loaned securities Derivatives instruments assets Sub-total Financial assets designed at FVTPL Equity-linked securities Asset-backed securities Debt securities Equity securities Beneficiary certificates Sub-total AFS financial assets Debt securities Equity securities Beneficiary certificates Loaned securities Others Sub-total Derivative assets Total Financial liabilities: Financial liabilities held for trading Deposits Borrowings Derivative liabilities Sub-total Financial liabilities designated at FVTPL Equity-linked securities Debentures Sub-total Derivatives Liabilities Total - 1,130,817 19,962 5,615,841 - 19,962 5,840,680 12,587,338 2,257 10,030,423 15,920 47,882 1,785 2,509,033 (*1) There is no transferred between level 1 and level 2 of financial assets and liabilities measured at fair value. The Group recognizes transfers between the levels at the end of reporting period within which events or conditions change. (*2) Certain AFS unquoted equity securities were measured at cost as of December 31, 2014 and 2013, that are amounting to 41,022 million Won and 197,350 million Won, respectively. These unquoted equity instruments mostly represent minority investments in special purposed entity vehicles such as asset securitization structures. They are measured at cost because (a) observable inputs of financial information to measure fair value was not available to obtain, or (b) there is a significant variance in likely estimated cash flows or (c) the probabilities for the various estimated cash flows could not be measured reliably. In addition, there were no indicators of impairments in these investments and the Group has no intention to dispose these investments in the foreseeable future. Financial assets and liabilities designated at FVTPL, held-for-trading financial assets and liabilities, AFS financial assets, and derivative assets and liabilities 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. - 38 - Woori Bank Annual Report 2014 145 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 Group determines the fair value using alternative assumptions and developing fair value measurement methods. Alternative assumptions and fair value measurement methods for each type of financial instruments are as follows: Debt securities Equity securities Derivatives Product Alternative assumptions Risk-free market rate, credit spread Risk-free market rate, Market Risk Premium, Beta Risk-free market rate, Forward Rate, Volatility, Foreign Exchange Rate, Stock Prices, etc. Fair value measurement methods The fair value is measured by discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities Among DCF (Discounted Cash Flow) Model, FCFE (Free Cash Flow to Equity) Model, Comparable Company Analysis, Dividend Discount Model, Risk- adjusted Rate of Return Method, and Net Asset Value Method, more than one method is used given the characteristic of the subject of fair value measurement. The in-house developed model which is based on the models that are used by market participants in the valuation of general OTC derivative products, such as options, interest rate swaps, and currency swap that are based on inputs observable in the market. However, for some complicated financial instruments of which valuation should be based on some assumptions since some significant or all inputs to be used in the model are not observable in the market, the in-house derived model which is developed from the general valuation models, such as Finite Difference Method (“FDM”) or Monte Carlo Simulation. Financial Instruments The fair value of security linked to stock prices or linked to stock prices or derivatives derivatives is measured by the models such as DCF model, FDM, or Monte Carlo Simulation given the natures of the securities or underlying assets. Debenture The fair value is measured by discounting the projected cash flows of a debenture by applying the market discount rate that is reflecting credit rating of the Group. Values of underlying assets, Risk-free market rate, Market rate, Dividend and convenience yield, Correlation, Volatility, Credit spread, and Foreign Exchange rate Risk-free market rate, Forward rate Valuation methods of financial assets and liabilities measured at fair value and classified into Level 3 and significant but unobservable inputs are as follows: Measurement methods Inputs Derivatives assets Option pricing model and others Derivatives liabilities Option pricing model and others Equity-linked securities and derivative-linked securities Equity Securities Monte Carlo Simulation and others External valuation price and others Correlation Coefficient Historical Volatility Credit risk-adjusted rate Correlation Coefficient Historical Volatility Correlation Coefficient Historical Volatility Expected growth rate and others Range -1 ~ 1 0% ~ 70% 0%~100% -1 ~ 1 0% ~ 70% -1~1 0%~70% 0% ~ 1% Fair value of financial assets and liabilities classified into level 3 is measured by the Group using its own valuation techniques or using external specialists. Unobservable inputs used in the fair value measurements are produced by the internal system of the Group and the appropriateness of inputs is reviewed regularly. - 39 - Strength in Our ValueS 146 (3) Changes in financial assets and liabilities classified into level 3 are as follows (Unit: Korean Won in millions): January 1, 2014 Net Income (loss) (*1) Other comprehensive income (loss) Purchases/ Issuances Disposals/ Settlements Transfer to or from level 3 (*5) Decrease due to the spin-off or disposals December 31, 2014 For the year ended December 31, 2014 Financial assets: Financial assets held for trading Derivatives instruments assets Others Sub-total Financial assets designed at FVTPL Equity-linked securities Debt securities Equity securities Sub-total AFS financial assets Debt securities(*2) Equity securities (*3) Beneficiary certificates (*2) Others (*2) Sub-total 307,782 6,185 313,967 41,776 (724) 41,052 408,120 2,676 10,579 421,375 (337) 26 (12) (323) - - - - - - - 9,050 1,843,889 562,941 102,914 2,518,794 (6,048) (137,631) 16,033 (2,439) (130,085) - 6,063 3,164 (1,134) 8,093 1,244 - 1,244 (108,345) (4,433) (112,778) 324,205 - - 324,205 - 106,654 41,214 12,898 160,766 (82,468) (2,702) - (85,170) - (114,450) (66,126) - (180,576) - - - - - - - (193,183) (1,028) (194,211) 49,274 - 49,274 (643,454) - - (643,454) 6,066 - 10,567 16,633 1,825 (551) (1,935) (70,000) (70,661) (4,827) - (672,056) 1,031,918 355,694 (199,597) 14,241 (27,998) (904,478) 1,401,853 Derivative assets Total 14,608 3,268,744 3,497 (85,859) - 8,093 - 486,215 (6,159) (384,683) - (70,661) 11,946 (1,742,143) 1,479,706 - Financial liabilities: Financial liabilities held for trading Derivative liabilities Financial liabilities designated at FVTPL Equity-linked securities (*4) Total 253,419 6,783 4,050 4,596 (43,250) - (183,887) 41,711 5,587,261 5,840,680 19,031 25,814 - 4,050 2,205,033 2,209,629 (815,356) (858,606) (88,044) (88,044) (6,545,932) (6,729,819) 361,993 403,704 - 40 - Woori Bank Annual Report 2014 147 Transfer to or from level 3 (*5) December 31, 2013 (*7) January 1, 2013 Net Income (loss) (*1) For the year ended December 31, 2013 Other comprehensive income (loss) Disposals/ Settlements Purchases/ Issuances Financial assets: Financial assets held for trading Derivatives instruments assets (*6) Others Sub-total Financial assets designed at FVTPL Equity-linked securities Asset-backed securities Debt securities Equity securities Sub-total AFS financial assets Debt securities Equity securities (*3) Beneficiary certificates (*2) Others (*2) Sub-total 301,017 - 301,017 127,807 (2,241) 125,566 593,129 46,990 5,305 11,121 656,545 43,372 - 73 840 44,285 13,733 1,916,779 386,581 130,245 2,447,338 (7,710) (70,057) (17,115) (4,821) (99,703) Derivative assets (*6) Total - 3,404,900 - 70,148 Financial liabilities: Financial liabilities held for trading Derivative liabilities (*6) Financial liabilities designated at FVTPL Equity-linked securities Total 159,248 97,570 4,797,434 4,956,682 227,218 324,788 - - - - - - - - 3,027 (17,104) 18,113 1,577 5,613 - 5,613 - - - 31,213 - 31,213 (172,361) (11,940) (184,301) 20,106 20,366 40,472 285,796 - - 1,912 287,708 - 253,824 115,498 4,666 373,988 - 692,909 (514,177) (46,990) (2,702) (3,294) (567,163) - - - - - - (131,815) (54,531) (3,253) (189,599) - (107,738) 114,395 (25,500) (18,843) - (941,063) 14,608 36,237 307,782 6,185 313,967 408,120 - 2,676 10,579 421,375 9,050 1,843,889 562,941 102,914 2,518,794 14,608 3,268,744 33,807 (41,859) 4,653 253,419 4,758,507 4,792,314 (4,195,898) (4,237,757) - 4,653 5,587,261 5,840,680 (*1) The loss amounting to 172,484 million Won and 117,855 million Won for the year ended December 31 2014 and 2013, respectively, which is from financial assets and liabilities that the Group holds as at the end of the year, has been recognized in net gain (loss) on financial instruments at FVTPL and net gain (loss) on AFS financial assets in the comprehensive income statements. (*2) AFS financial assets were transferred from level 2 into level 3 or vice versa upon the changes in the degree of subjectivity and uncertainty used to measure fair values, such as using quoted price in inactive market or values from external valuation specialists, for the AFS financial assets. (*3) AFS financial assets were transferred out of level 3 to level 1 upon the change of the fair value measurement method of the assets by using quoted prices in the active market from previously using the external valuation specialists. (*4) Since the observable market data for equity-linked securities has been available, such securities were transferred out of level 3 to level 2. (*5) The Group recognizes transfers between levels at the end of reporting period within which events have occurred or conditions have changed. (*6) As the variables used for the valuation of interest rate and equity related derivatives were not observable in the market, such derivatives were transferred into level 3 from level 2. In the case of currency related derivatives, the variables which were unobservable in the market significantly impacted the valuation of such derivatives. As such, the derivatives were transferred into level 3 from level 2. (*7) As at the end of 2013, financial assets and liabilities, amounting to 1,662,501 million Won and 5,600,440 million Won, respectively, that had been reclassified into disposal group held for sale and disposal groups held for distribution to owners, were incorporated. - 41 - Strength in Our ValueS 148 (4) Sensitivity analysis on the unobservable inputs used for measuring level 3 financial instruments. The sensitivity analysis of the financial instruments has been performed by classifying with favorable and unfavorable changes based on how changes in unobservable assumptions would have effects on the fluctuations of financial instruments’ value. 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 two types of level 3 financial instruments: (1) interest rate related derivatives, currency related derivatives, equity related derivatives, and equity-linked securities of which fair value changes are recognized as net income; (2) equity securities and beneficiary certificates of which fair value changes are recognized as other comprehensive income. Equity securities classified as level 3 but measured at costs are excluded from sensitivity analysis. The following table shows the sensitivity analysis to disclose the effect of reasonably possible alternative assumptions on the fair value of a level 3 financial instruments for the years ended December 31, 2014 and 2013. (Unit: Korean Won in millions): For the year ended December 31, 2014 Net income (loss) Other comprehensive income (loss) Favorable Unfavorable For the year ended December 31, 2013 Net income (loss) income (loss) Other comprehensive Favorable Unfavorable Favorable Unfavorable Favorable Unfavorable Financial assets: Financial assets held for trading Derivatives instruments assets (*1)(*2) 14,093 (6,471) Financial assets designed at FVTPL Equity-linked securities (*1) AFS Financial Assets Equity securities (*3) Beneficiary certificates (*4) Others (*4) Total Financial liabilities: Financial liabilities held for trading Derivative liabilities (*1)(*2) Financial liabilities designated at FVTPL Equity-linked securities (*1) Total - - - - 33,867 (45,614) 1,672 (321) - - - - 80,085 (39,055) - - 150,607 (60,481) - - - - - - 14,093 - - (6,471) 3,430 6,823 90,338 (3,243) (2,858) (45,156) - - 35,539 - - (45,935) 5,851 1,296 157,754 (5,642) (647) (66,770) 7,939 (7,222) 1,497 9,436 (1,483) (9,205) - - - - - - 32,097 (36,434) 55,764 87,861 (34,133) (70,567) - - - - - - (*1) Fair value changes of equity related derivatives assets and liabilities and equity-linked securities are calculated by increasing or decreasing historical fluctuation rate of stock price and correlation, which are major unobservable variables, by 10%, respectively. In the case of interest rate and currency related derivative assets and liabilities, fair value changes are calculated by increasing or decreasing volatility of interest rate and credit risk adjustment ratio, which are major unobservable variables, by 10%, respectively. (*2) Both derivative assets and liabilities for held for trading and hedging are included. (*3) Fair value changes of equity securities are calculated by increasing or decreasing growth rate (0~1%) and discount rate or liquidation value (-1~1%) and discount rate. The growth rate, discount rate, and liquidation value are major unobservable variables. (*4) Fair value changes of beneficiary certificates and other securities are calculated by increasing or decreasing price fluctuation of trust property or real estate which is underlying assets and discount rate by 1%. The price fluctuation of trust property and discount rate are major unobservable variables. - 42 - Woori Bank Annual Report 2014 149 (5) Fair value and carrying amount of financial assets and liabilities that are recorded at amortized cost are as follows (Unit: Korean Won in millions): As of December 31, 2014 Fair value Level 1 Level 2 Level 3 Total Book value Financial assets: Held-to-maturity financial assets 1,902,558 Loans and receivables - 11,365,202 - - 225,284,372 13,267,760 225,284,372 13,044,448 223,370,135 Financial liabilities: Deposits due to customers Borrowings Debentures Other financial liabilities - - - - 188,673,796 17,772,085 24,976,056 16,889,129 Fair value - - - - 188,673,796 17,772,085 24,976,056 16,889,129 188,516,465 17,707,595 24,795,904 16,889,687 As of December 31, 2013 Classified into asset group held for sale Book value Classified into asset group held for distribution to owners Book value Level 1 Level 2 Level 3 Total Financial assets: Held-to-maturity financial assets Loans and receivables Financial liabilities: 4,276,844 12,069,195 - - 16,346,039 266,158,950 266,158,950 - 3,025 11,738,411 4,124,084 41,057,781 12,038,820 211,912,373 Deposits due to customers Borrowings Debentures Other financial liabilities - 200,398,709 - 34,599,697 - 26,813,454 - 22,516,475 14,213,925 214,612,634 36,416,198 1,816,501 29,144,844 2,331,390 24,233,751 1,717,276 1,988,495 13,502,487 4,045,486 2,308,489 36,603,292 4,860,597 2,515,965 1,859,151 175,323,644 18,231,511 21,677,674 19,914,947 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 Group determines the fair value using alternative assumptions through developing fair value measurement methods. Alternative assumptions and fair value measurement methods for financial assets and liabilities that are measured at amortized costs are given as follows: Debt securities The fair value is measured by Fair value measurement methods discounting the projected cash flows of debt securities by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the issuers of the securities Alternative assumptions Risk-free market rate, Credit spread Loans and receivables The fair value is measured by Risk-free market rate, discounting the projected cash flows of loan products by applying the market discount rate that has been applied to a proxy company that has similar credit rating to the debtor. Deposit due to customers, The fair value is measured by Borrowings, and Debentures discounting the projected cash flows of debt products by applying the market discount rate that is reflecting credit rating of the Group. Credit spread, Prepayment-rate Risk-free market rate, Forward rate - 43 - Strength in Our ValueS 150 12. DERECOGNITION AND OFFSET OF FINANCIAL INSTRUMENTS (1) Derecognition of financial assets 1) The book value, fair value of, and maximum exposure to loss from the financial assets that were derecognized from the consolidated financial statements of the Group through disposals, but the Group still have continuous involvements are given as below: Type of continuous involvement December 31, 2014 Book value of continuous participation Fair value of continuous participation Maximum exposure to loss Conditional disposal of loans to KAMCO (*) Post settlement - - 709 KAMCO tenth Asset Securitization Specialty (“KAMCO specialty”) Conditional disposal of loans Type of continuous involvement Acquisition of subordinated bonds December 31, 2013 Book value of continuous participation Fair value of continuous participation Maximum exposure to loss 1,746 1,851 1,746 to KAMCO (*) Post settlement - - 709 (*) KAMCO is still in the process of collecting cash flows related to the transferred assets and the maximum exposure to loss represents the carrying amounts of the assets at the date when they were transferred to KAMCO. Under previous K-GAAP, the Group derecognized the transferred assets although the Group retains and continues to retain substantially all such risks and rewards and according to the transition exemptions in IFRS 1101, the Group did not reassess the derecognition criteria for these transfers. 2) Transferred financial assets that are not derecognized in their entirety a) Disposal of securities under repurchase agreement The financial instruments that were disposed but the Group agreed to repurchase at the fixed amounts at the same time, so that they did not meet the conditions of derecognition, are as follows: Property for transfer Related liabilities Financial assets at FVTPL AFS financial assets HTM financial assets Total Disposal of securities under repurchase agreements December 31, 2014 December 31, 2013 9,851 926,796 650,937 1,587,584 - 126,589 651,582 778,171 1,196,237 513,442 - 44 - Woori Bank Annual Report 2014 151 b) Loaned securities When the Group loans its securities to outside parties, the legal ownerships of the securities are transferred, however, they should be returned at the end of lending period therefore the Group does not derecognize them from the consolidated financial statements as it owns majority of risks and benefits from the securities continuously regardless of the transfer of legal ownership. Financial assets at Equity securities- listed stock FVTPL AFS financial Korean treasury and December 31, 2014 December 31, 2013 14,737 33,084 assets government agencies bonds Total 686,096 700,833 240,034 273,118 Loaned to Samsung Securities Co., Ltd. and others Korea Securities Depository and others The details of the transferred financial assets that are not derecognized in their entirety, such as disposal of securities under repurchase agreement or loaned securities, are explained in Note 18. (2) The offset with financial assets and liabilities The Group possesses both the uncollected domestic exchange receivables and unpaid domestic exchange payable, which satisfy offsetting criteria of K-IFRS 1032. Therefore, the total number of uncollected domestic exchange receivables or unpaid domestic exchange payable has been countervailed with part of unpaid domestic exchange payable or uncollected domestic exchange receivables, respectively, and has been disclosed in loans and receivables or other financial liabilities of the Group’s statements of financial position and loans and receivables, respectively. The Group possesses the derivative assets, derivative liabilities, receivable spot exchange, and payable spot exchange which do not satisfy the offsetting criteria of K-IFRS 1032, but provide the Group the right of, under the circumstances of the trading party’s defaults, insolvency, or bankruptcy, the offsetting. Item such as cash collateral cannot satisfy the offsetting criteria of K-IFRS 1032, but in accordance with the collateral arrangements and under the circumstances of the trading party’s default, insolvency, or bankruptcy, the derivative assets, derivative liabilities, receivable spot exchange, and the net amount of payable spot exchange can be offset. The Group has entered into a sale and repurchase agreements and accounted it as collateralized borrowing. Also, the Group has entered into a purchase and resale agreement and accounted it as secured loans. The repurchase and resale agreement can have the offsetting right only under the trading party’s default, insolvency, or bankruptcy which do not satisfy the offsetting criteria of K-IFRS 1032, the Group recorded the collateralized borrowings in borrowings and the secured loans in loans and receivables. - 45 - Strength in Our ValueS 152 As at the end of reporting periods, the financial instruments to be set off and may be covered by master netting agreements and similar agreements are given as below: Financial assets: Derivative assets and others (*1) Receivable spot exchange (*2) Bonds purchased under resale agreements (*2) Domestic exchanges receivable (*2)(*5) Total December 31, 2014 Gross amounts of recognized financial liabilities set off Net amounts of financial assets presented Related amounts not set off in the statement of financial position Financial instruments Cash collateral received Net amounts 16,228 - 2,300,067 3,619,768 5,413,119 37,142 469,574 - 6,891,629 6,891,629 - - Gross amounts of recognized financial assets 2,316,295 3,619,768 6,891,629 28,094,142 40,921,834 27,310,235 27,326,463 783,907 13,595,371 - 12,304,748 - 783,907 37,142 1,253,481 December 31, 2014 Gross amounts of recognized financial liabilities Gross amounts of recognized financial assets set off Net amounts of financial liabilities presented Related amounts not set off in the statement of financial position Financial instruments Cash collateral pledged Net amounts Financial liabilities: Derivative liabilities and others (*1) Payable spot exchange (*3) Bonds sold under repurchase agreements (*4) Domestic exchanges payable 2,478,924 3,616,169 1,196,237 16,228 - 2,462,696 3,616,169 5,396,870 41,229 640,766 - 1,196,237 1,196,237 - - (*3)(*5) Total 30,636,705 37,928,035 27,310,235 27,326,463 3,326,470 10,601,572 3,147,053 9,740,160 - 41,229 179,417 820,183 Financial assets: Derivative assets and others (*1) Receivable spot exchange (*2) Bonds purchased under resale agreements (*2) Domestic exchanges receivable (*2)(*5) Total Gross amounts of recognized financial assets 2,259,165 7,179,446 4,980,889 Gross amounts of recognized financial liabilities set off - - - December 31, 2013 Related amounts not set off in the statement of financial position Financial instruments Cash collateral received Net amounts 8,998,345 121,042 319,224 Net amounts of financial assets presented 2,259,165 7,179,446 4,980,889 4,980,889 - - 23,808,051 38,227,551 23,222,175 23,222,175 585,876 15,005,376 - 13,979,234 - 121,042 585,876 905,100 December 31, 2013 Gross amounts of recognized financial liabilities Gross amounts of recognized financial assets set off Net amounts of financial liabilities presented Related amounts not set off in the statement of financial position Financial instruments Cash collateral pledged Net amounts Financial liabilities: Derivative liabilities and others (*1) Payable spot exchange (*3) Bonds sold under repurchase agreements (*4) 2,300,467 7,180,609 513,442 - - - 2,300,467 7,180,609 9,008,372 513,442 513,442 Domestic exchanges payable (*3)(*5) Total 25,992,000 35,986,518 23,222,175 23,222,175 2,769,825 12,764,343 2,746,298 12,268,112 - - - - 472,704 - 23,527 496,231 - 46 - Woori Bank Annual Report 2014 153 (*1) Includes derivatives held for trading, derivatives for hedging and equity linked securities related to derivatives (*2) Are included in loans and receivables (*3) Are included in other financial liabilities (*4) Are included in borrowings (*5) A portion of total financial assets and liabilities is presented at its net amount 13. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES (1) Investments in joint ventures and associates accounted for using the equity method of accounting are as follows (Unit: Korean Won in millions): Main business Percentage of ownership (%) December 31, 2014 December 31, 2013 Life insurance - 51.6 Subsidiaries Woori Finance Holdings: (*2) Woori Aviva Life Insurance Co., Ltd. (*1) Woori Bank, Kyongnam Bank, Kwangju Bank, Woori Financial, Woori Investment & Securities and Woori Private Equity Fund: Woori Blackstone Korea Opportunity Private Equity Fund I (*3) Woori Bank, Kyongnam Bank and Kwangju Bank: Korea Credit Bureau Co., Ltd. (*3)(*4) Woori Bank, Woori Investment & Securities: DKT (*1) Woori Bank and Woori F&I : KAMCO Fifth Asset Securitization Specialty (*1) Woori Bank and Woori Private Equity Fund: Finance Credit information Manufacturing Asset securitization Phoenix Digital Tech Co., Ltd. Semiconductor equipment Woori Bank: Korea Finance Security Co., Ltd. (*5) Woori Service Networks Co., Ltd. (*5) Kumho Tire Co., Inc. (*7)(*8) United PF 1st Corporate Financial Stability (*4) Chin Hung International Inc. (*8) Poonglim Industrial Co., Ltd.(*12) Ansang Tech Co., Ltd. (*9) Hana Construction Co., Ltd. (*9) STX Engine Co., Ltd.(*7) SamHo Co., Ltd. (*7)(*8) Force TEC Co., Ltd. (*9) Osung LST Co., Ltd. (*7) STX Corporation (*7) Woori Investment & Securities: Woori New Alpha Fund (*1) Woori F&I: Woori SB Eleventh Asset Securitization Specialty (*1) Woori SB Twelfth Asset Securitization Specialty (*1) Woori BC Pegasus Asset Securitization Specialty(*1) Woori Stream Fourth Asset Securitization Specialty (*1) Woori EA First Asset Securitization Specialty (*1) Woori EA Second Asset Securitization Specialty (*1) Woori EA Sixth Asset Securitization Specialty (*1) Woori EA Seventh Asset Securitization Specialty (*1) Woori EA Ninth Asset Securitization Specialty (*1) Security service Freight & staffing services Manufacturing Finance Construction 〃 Manufacturing Construction Manufacturing Construction Freight & staffing services Manufacturing Wholesale of Non- Specialized Goods Investments Asset securitization 〃 〃 〃 〃 〃 〃 〃 〃 - 47 - 26.4 7.2 - - 44.8 15.3 4.9 14.2 17.7 26.8 30.7 23.0 22.2 15.0 7.8 34.4 11.1 15.0 - - - - - - - - - - 44.6 9.0 28.2 49.0 63.1 15.3 4.9 12.5 17.7 26.8 29.9 23.0 22.2 15.0 7.8 22.6 - - 70.0 45.0 40.0 30.0 40.0 40.0 40.0 40.0 45.0 40.0 Strength in Our ValueS 154 Subsidiaries Main business Percentage of ownership (%) December 31, 2014 December 31, 2013 Woori EA Eleventh Asset Securitization Specialty (*1) Woori EA Sixteenth Asset Securitization Specialty (*1) Woori EA Seventeenth Asset Securitization Specialty (*1) WR Loan Inc.(*1) KAMCO Sixth Asset Securitization Specialty (*1) KAMCO Seventh Asset Securitization Specialty (*1) Woori Fine First Asset Securitization Specialty (*1) Woori Fine Second Asset Securitization Specialty (*1) Woori Fine Third Asset Securitization Specialty (*1) Woori Fine Fourth Asset Securitization Specialty (*1) Woori HB Third Asset Securitization Specialty (*1) Woori EA Nineteenth Asset Securitization Specialty (*1) Woori KA First Asset Securitization Specialty (*1) Chungdo Woori Century Security Co., Ltd. Asset securitization 〃 〃 Other financial business Asset securitization 〃 〃 〃 〃 〃 〃 〃 〃 - - - - - - - - - - - - - - (*1) Woori Private Equity Fund: Other financial business Woori Renaissance Holdings (*10) Other financial business Woori Private Equity Woori Columbus First PEF(*11) Other financial business MARS Second: Seoul Lakeside Co., Ltd. (*1) Hotel 51.6 1.9 - 45.0 30.0 45.0 49.0 45.0 45.0 45.0 45.0 45.0 45.0 40.0 40.0 45.0 49.5 51.6 2.0 47.5 (*1) During the year ended at December 31, 2014, Woori Aviva Life Insurance Co., Ltd., Kyongnam Bank, Kwangju Bank, Woori Investment & Securities, and Woori F&I have been deconsolidated through spin-off or disposals. As such the investments in joint ventures and associates that the deconsolidated subsidiaries were previously holding are excluded from the above list at the end of 2014. (*2) During the year ended December 31, 2014, Woori Finance Holdings was merged into the Bank. (*3) During the year ended December 31, 2014, Kyongnam Bank, Kwangju Bank, Woori Financial, and Woori have been deconsolidated through spin-off or disposals. Accordingly, the joint ownership of the Group in the entity has decreased. (*4) The Group can participate in decision making body and exercise significant influence over Korea Credit Bureau Co., Ltd. and the United PF 1st Corporate Financial Stability through business partnerships. (*5) The significant business of Woori Service Network and Korea Finance Security is transacted mostly with the Group. (*6) The significant transactions and events between the end of reporting date of the investees and the investors have been properly addressed. (*7) The Group can exercise significant influence through its position in the creditors' council. (*8) The investment in associates that have quoted market prices are Kumho Tire (Current year: KRW 9,670, Previous year: KRW 11,500), Chin Hung International (Current year: KRW 1,665, Previous year: KRW 1,610), and Samho Co., Ltd. (Current year: KRW 13,150, Previous year: 3,300). (*9) The carrying amounts of investments in Ansang Tech Co.,Ltd. , Hana Construction Co., Ltd. and Force TEC Co., Ltd. are nil as of December 31, 2014 and 2013, respectively. (*10) The Group owns over 50% ownership of Woori Renaissance Holdings. However, it is applying the equity method of accounting as the ownership and related contracts meet the definition of joint arrangement under K-IFRS 1111 Joint Arrangements. (*11) As a general partner of Woori Columbus First PEF, the Group has significant influence over the entity’s operational and financial policy making process, including participating in dividend or other distribution. As such, the Group is applying the equity method of accounting. (*12) Poonglim Industrial Co., Ltd. acquired its treasury stocks during the year ended December 31, 2014, and as such, the ownership of the Group in the company increased. - 48 - Woori Bank Annual Report 2014 155 (2) Changes in the carrying value of investments in joint ventures and associates accounted for using the equity method of accounting are as follows (Unit: Korean Won in millions): Acquisition cost January 1, 2014 Share of profits (losses) Acquisi- tion Disposal and others Dividends Change in Capital Impairment Other changes December 31, 2014 For the year ended December 31, 2014 Woori Blackstone Korea Opportunity First Korea Credit Bureau DKT KAMCO Fifth Asset Securitization Specialty Phoenix Digital Tech Co., Ltd. Korea Finance Security Co., Ltd. Woori Service Networks Co., Ltd. Kumho Tire Co., Inc. United PF 1st Corporate 83,011 2,215 50,000 93,714 3,347 20,170 11,969 31 (595) 8,736 3,827 521 1,872 3,688 (3,008) 3,337 4,311 16 - - - - - - (1,727) - (19,575) (4,348) 921 - 108 93,003 136 140,101 6 21,219 - 113,935 - (50,007) financial stability 191,617 203,730 (312) Chin Hung International Inc. 60,275 45,900 (17,158) 13,917 47,008 7,492 34 - - 3,079 47,008 7,492 34 - - (3,079) (44,422) 2,284 - (3,806) 918 - - - - - - 15,405 47,323 - - - - - - - (4,642) (3,520) - - - - (55) (12) - - - - - - - - - - - - - - - - - (1,013) (588) - - 497 - (251) - (294) 5 - (4) (881) 41 - - - - - - - - - - - (28,370) - (6,441) - - - - - - - (916) - - - - 1,476 (34) 6,887 - - - Poonglim Industrial Co., Ltd. STX Engine Co., Ltd. SamHo Co., Ltd. Force TEC Co., Ltd. Osung LST Co., Ltd. STX Corporation Indonesia Woori Saudara Bank (*1) Woori Renaissance Holdings Woori Columbus First PEF Woori Aviva Life Insurance Co., Ltd. Woori Blackstone Korea Opportunity First Korea Credit Bureau DKT KAMCO Fifth Asset Securitization Specialty Phoenix Digital Tech Co., Ltd. Korea Finance Security Co., Ltd. Woori Service Networks Co., Ltd. Kumho Tire Co., Inc. United PF 1st Corporate - - 160 67,431 (66,992) (640) 63,000 39,806 2,654 - - - 1,200 626,825 1,227 617,570 21 (32,581) - 244,094 (84) (146,454) (80) (4,307) - (1,900) - (35,399) - 7,413 Acquisition cost January 1, 2013 Share of profits (losses) Acquisi- tion Disposal and others Dividends Change in Capital Other changes Classification of assets as held for sales / distribute to owners December 31, 2013 For the year ended December 31, 2013 110,098 122,406 427 - - - (12,438) - (110,395) - 210,394 3,115 50,000 207,036 3,931 - 12,293 316 (1,739) - - 50,000 (47,664) - - (12,868) - - - (2,330) - (4,600) - - 2,280 - 5,306 - - 919 1 - - - - - - - (18) - - (65,065) (900) (30,371) 11 (8,708) - - - (1,086) 5,835 - - - - - - - - - - - - - - - - (19,944) (756) (1,988) (1,426) - - - - - - - - - - - - (29,377) - - (553) - - - - - - - - - (55) (7) - - - - - - - - - - - 12,590 16,579 (4,055) 1,872 1,859 (3,477) 3,337 4,244 122 108 113,204 129 156,028 14 20,380 financial stability 191,617 201,364 2,366 Chin Hung International Inc. 60,275 56,223 (10,156) Poonglim Industrial Co., Ltd. STX Engine Co.,Ltd. SamHo Co.,Ltd. Force TEC Co., Ltd. Woori New Alpha Fund Woori SB Eleventh Asset Securitization Specialty Woori SB Twelfth Asset Securitization Specialty Woori BC Pegasus Asset Securitization Specialty (*2) 14,476 - - - 20,370 14,476 - - - - (16,680) - - - (426) - 47,008 7,492 34 20,370 2,026 787 (31) 3,077 2,030 (42) 2,908 - 1,426 - - - - 49 - 100,436 3,378 - - - 4,272 130 224,829 203,418 28,491 - 2,292 11,257 - 18,482 14,348 - 36,019 1,084 648,436 93,714 3,347 20,170 3,827 3,688 4,311 136 140,101 203,730 45,900 3,079 47,008 7,492 34 - - - - Strength in Our ValueS 156 Woori Stream Fourth Asset Securitization Specialty Woori EA First Asset Securitization Specialty (*2) Woori EA Second Asset Securitization Specialty (*2) Woori EA Sixth Asset Securitization Specialty (*2) Woori EA Seventh Asset Securitization Specialty Woori EA Ninth Asset Securitization Specialty Woori EA Eleventh Asset Securitization Specialty Woori EA Sixteenth Asset Securitization Specialty Woori EA Seventeenth Asset Securitization Specialty WR Loan Inc. KAMCO Sixth Asset Securitization Specialty KAMCO Seventh Asset Securitization Specialty Woori Fine First Asset Securitization Specialty Woori Fine Second Asset Securitization Specialty Woori Fine Third Asset Securitization Specialty Woori Fine Fourth Asset Securitization Specialty Woori HB Third Asset Securitization Specialty(*2) Woori EA Nineteenth Asset Securitization Specialty Woori KA First Asset Securitization Specialty Chungdo Woori Century Security Co., Ltd. Woori Renaissance Holdings Woori Columbus First PEF Seoul Lakeside Co., Ltd. Acquisition cost January 1, 2013 Share of profits (losses) Acquisi- tion Disposal and others Dividends Change in Capital Other changes Classification of assets as held for sales / distribute to owners December 31, 2013 For the year ended December 31, 2013 1,250 787 627 400 400 400 - - - 315 (265) (968) 1,611 2,324 (49) 400 1,383 581 9,905 14,170 10 5,400 4,902 (2,599) 4,950 5 4,583 31 (4,298) 9 1,448 6,499 (102) 390 198 (14) 397 11,400 9,760 5,040 5,106 2,059 - - - - - - - - - - - - - - 7,695 10,845 - - 277 7,695 265 10,845 234 233 (57) 400 406 3,010 4,500 4,500 2,889 8,187 9,199 1,262 63,000 38,800 1,006 - - - - - - - - - - - - - - - - (60) - - (432) (841) (1,830) - - - - - - - - - - - - - (3,865) (1,363) (6) - - (9,900) (10,942) - - - - - - - - (202) - - (304) (600) - - - - - - (2) (2) - - - 77 - - (800) (614) (255) 265 968 - - - - - - - - - - - - - - - (1,843) (1,123) (12,350) (2,303) (285) (40) (1,163) (184) (318) (6,963) (7,970) (11,108) 128 - - - - - - (2,816) (7,389) (10,538) - - - - - - - - - - - - - - - - - - - - - - 39,806 1,227 - 617,570 1,200 - 162 1,200 (51) (84) 198,450 146,317 1,125,974 1,037,930 5,899 20,517 - 144,644 - (91,410) - (29,588) - (6,195) - (978) (152,216) (457,350) (*1) During the year ended December 31, 2014, Indonesia Woori Bank merged with Saudara Bank, and changed its name into Indonesia Woori Saudara Bank. Indonesia Woori Saudara Bank is a consolidated subsidiary as at the end of 2014, therefore is excluded from the list of associates. (*2) Where the book value of investment in joint venture or associate is nil, the additional loss are deducted from loans that are provided to such associates or joint ventures. - 50 - Woori Bank Annual Report 2014 157 (3) Financial information relating to investments in joint ventures and associates accounted for using the equity method of accounting is as follows (Unit: Korean Won in millions): Woori Blackstone Korea Opportunity First Korea Credit Bureau Co., Ltd. Phoenix Digital Tech Co., Ltd. Korea Finance Security Co., Ltd. Woori Service Networks Co., Ltd. Kumho Tire Co., Inc. United PF 1st Corporate Financial Stability Chin Hung International Inc. Poonglim Industrial Co., Ltd. STX Engine Co., Ltd. SamHo Co., Ltd. Osung LST Co., Ltd. STX Corporation Woori Renaissance Holdings Inc. Woori Columbus First PEF Woori Aviva Life Insurance Co., Ltd. Woori Blackstone Korea Opportunity First Korea Credit Bureau Co., Ltd. DKT KAMCO Fifth Asset Securitization Specialty Phoenix Digital Tech Co., Ltd. Korea Finance Security Co., Ltd. Woori Service Networks Co., Ltd. Kumho Tire Co., Inc. United PF 1st Corporate Financial Stability Chin Hung International Inc. Poonglim Industrial Co., Ltd. STX Engine Co., Ltd. SamHo Co., Ltd. Woori New Alpha Fund Woori SB Eleventh Asset Securitization Specialty Woori SB Twelfth Asset Securitization Specialty Woori BC Pegasus Asset Securitization Specialty Woori Stream Fourth Asset Securitization Specialty Woori EA First Asset Securitization Specialty Woori EA Second Asset Securitization Specialty Woori EA Sixth Asset Securitization Specialty Woori EA Seventh Asset Securitization Specialty Woori EA Ninth Asset Securitization Specialty Woori EA Eleventh Asset Securitization Specialty Woori EA Sixteenth Asset Securitization Specialty Woori EA Seventeenth Asset Securitization Specialty WR Loan Inc. KAMCO Sixth Asset Securitization Specialty KAMCO Seventh Asset Securitization Specialty Woori Fine First Asset Securitization Specialty Woori Fine Second Asset Securitization Specialty Woori Fine Third Asset Securitization Specialty Woori Fine Fourth Asset Securitization Specialty Woori HB Third Asset Securitization Specialty Woori EA Nineteenth Asset Securitization Specialty Woori KA First Asset Securitization Specialty Chungdo Woori Century Security Co., Ltd. Woori Renaissance Holdings Inc. Woori Columbus First PEF Seoul Lakeside Co., Ltd. December 31, 2014 Assets Liabilities Operating revenue Net income (loss) 380,622 54,716 27,400 30,990 4,250 4,590,346 1,187,406 522,749 447,617 1,088,209 654,477 172,100 1,158,788 88,605 56,936 Assets 4,466,178 354,993 63,043 486,983 69,708 23,159 31,113 4,485 4,516,507 1,159,220 551,443 545,000 1,975,978 680,075 26,868 1,689 4,978 5,024 1,541 8,835 5,849 11,587 4,910 10,072 29,087 49,278 37,049 1,257 2,612 422 761 37,410 32,863 47,690 541 31,447 33,344 23,458 100,501 63,835 238,870 873 7,805 26,187 3,108 1,625 3,323,743 40,240 495,523 417,688 1,083,907 510,878 101,265 1,040,746 23,536 602 48,887 46,111 9,650 47,398 14,394 3,414,009 105,369 552,668 157,123 386,058 860,851 86,351 1,184,480 6,876 1,540 45,351 114 (4,901) 5,527 770 130,010 (1,962) (11,481) (16,530) (27,878) 30,025 (44,951) 407,231 (7,334) (178) December 31, 2013 Liabilities Operating revenue Net income (loss) 4,309,084 894 16,542 348,777 44,120 17,044 2,985 1,736 3,453,028 10,294 459,171 472,549 1,726,903 565,878 139 9 8 15,157 7 14,530 7,670 14,718 815 7,265 1,643 41,603 36,416 1,175 17 3 44 21,938 15,152 23,007 860 24,407 16,924 2,174 33,559 325 257,210 981,778 13,794 51,571 155,684 824 33,409 45,003 14,131 3,676,336 152,315 403,977 164,734 542,281 646,868 (89) 30 52 6,212 2,916 4,430 412 974 162 2,691 4,479 7,769 4,049 180 77 12 21,966 10,458 2,138 672 1,063 16,947 14,519 2,667 4,399 9,268 36,005 2,247 27,620 4,909 (12,227) (8,275) (251) 6,356 1,061 110,580 13,567 (14,915) (54,314) (560,405) 8,399 (609) (70) (104) 4,755 1,567 788 (661) (2,421) (110) 1,452 23 (8,662) (9,552) 20 (226) (31) 21,687 4,575 615 588 (142) 7,525 6,423 2,549 1,949 8,344 6,045 - 51 - Strength in Our ValueS 158 (4) The entities that the Group has not applied equity method of accounting although the Group’s ownership ratio is more than 20% as of December 31, 2014 and 2013, are as follows: Vogo II-2 Investment Holdings Co., Ltd. (*1) LIG engineering & construction Co., Ltd. (*2) Orient shipyard Co., Ltd. (*2) Jinsaeng K Co., Ltd. (*2) PICITY Co., Ltd. (*2) Gdsys Co., Ltd. (*2) G2 Collection Co., Ltd. (*2) Alkenz Co., Ltd. (*2) SJ Development Co., Ltd. (*2) Ilyang Construction Co., Ltd. (*2) Ssangyong Engineering & Construction Co., Ltd. (*2) Vogo II-2 Investment Holdings Co., Ltd. (*1) LIG engineering & construction Co., Ltd. (*2) Orient shipyard Co., Ltd. (*2) Jinsaeng K Co, Ltd. (*2) PICITY Co., Ltd. (*2) As of December 31, 2014 Number of shares owned 24,794,201,938 shares 755,946 shares 465,050 shares 2,107,432 shares 871,631 shares 300,805 shares 12,574 shares 80,402 shares 70,529 shares 105,936 shares Ownership (%) 36.4% 22.8% 23.0% 20.2% 21.1% 21.2% 28.9% 37.5% 26.5% 40.0% 2,957,728 shares 20.3% As of December 31, 2013 Number of shares owned 24,548,281,071 shares 755,946 shares 465,050 shares 2,107,432 shares 871,631 shares Ownership (%) 36.4% 22.8% 23.0% 20.2% 21.1% (*1) Even though the Group’s ownership ratio of the entity is more than 20% as a limited partner, it is determined that the Group does not have significant influence over the entity since the Group cannot exercise significant influence in the decision making bodies, such as investment committee, thus it has been excluded from the investment in associates. (*2) Even though the Group’s ownership ratio of the entity is more than 20%, it does not have significant influence over the entity due to the fact that the entity is going through workout process under receivership, thus it has been excluded from the investment in associates. - 52 - Woori Bank Annual Report 2014 159 (5) As of December 31, 2014 and 2013, the reconciliations from the net assets of associates based on the ownership ratio of the Group to its corresponding book value of investment in joint ventures and associates are as follow (Unit: Korean Won in millions except for ownership): Total net asset Ownership (%) As of December 31, 2014 Net assets of associates (or joint ventures) Goodwill Impairment Intercompany transaction and others Woori Blackstone Korea Opportunity First Korea Credit Bureau Phoenix Digital Tech Co., Ltd. Korea Finance Security Co., Ltd. Woori Service Networks Co., Ltd. Kumho Tire Co., Inc. (*1) United PF 1st Corporate financial stability Chin Hung International Inc. (*1) Poonglim Industrial Co., Ltd. (*1) STX Engine Co., Ltd. (*1) SamHo Co., Ltd. Osung LST Co., Ltd. (*1) STX Corporation (*1) Woori Renaissance Holdings Woori Columbus First PEF 379,749 46,911 1,213 27,882 2,625 1,228,329 1,147,166 26,650 (159,358) (93,532) 143,599 (295,129) 117,709 65,069 56,334 26.4 7.2 44.8 15.3 4.9 14.2 17.7 26.8 30.7 15.0 7.8 11.1 15.0 51.6 1.9 100,248 3,378 543 4,272 130 173,820 203,418 7,132 (48,994) (14,029) 11,257 (32,897) 17,639 33,576 1,082 - - 45 - - 48,459 - 21,359 - - - 51,379 24,610 - 6 - - (588) - - - - - - - - - (28,370) (6,441) - As of December 31, 2013 188 - - - - 2,550 - - 48,994 16,321 - - 469 8,884 (4) Total net asset 157,094 Ownership (%) 51.6 Net assets of associates (or joint ventures) 81,029 Woori Aviva Life Insurance Co., Ltd. Woori Blackstone Korea Opportunity First Korea Credit Bureau DKT KAMCO Fifth Asset Securitization 354,099 46,501 138,206 Specialty (*2) Phoenix Digital Tech Co., Ltd. Korea Finance Security Co., Ltd. Woori Service Networks Co., Ltd. Kumho Tire Co., Inc. (*1) United PF 1st Corporate financial stability Chin Hung International Inc. (*1) Poonglim Industrial Co., Ltd. STX Engine Co., Ltd. SamHo Co., Ltd. Woori New Alpha Fund Woori SB Eleventh Asset Securitization Specialty Woori SB Twelfth Asset Securitization Specialty Woori BC Pegasus Asset Securitization Specialty Woori Stream Fourth Asset Securitization Specialty Woori EA First Asset Securitization Specialty Woori EA Second Asset Securitization Specialty Woori EA Sixth Asset Securitization Specialty Woori EA Seventh Asset Securitization Specialty Woori EA Ninth Asset Securitization Specialty Woori EA Eleventh Asset Securitization Specialty (*2) Woori EA Sixteenth Asset Securitization Specialty Woori EA Seventeenth Asset Securitization Specialty WR Loan Inc. 25,588 6,115 28,128 2,749 1,063,479 1,148,926 92,272 72,451 249,075 114,197 26,729 1,680 4,970 (10,133) 1,534 (5,695) (1,821) (3,131) 4,095 2,807 27,444 7,675 633 82 Goodwill 20,525 Difference in fair value 8,841 - - - - - 11,539 - 45 - - 15,125 - 21,359 38,354 14,928 - 1,234 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Intercompany transaction and others - 1,028 62 - (3) - - - (3,272) - - - - (1,460) - - - - - - - - - - - - - - 157,751 4,185 39,002 12,538 3,643 4,311 136 128,248 203,730 24,541 (35,275) 32,080 8,952 18,710 756 1,988 (3,040) 614 (2,278) (728) (1,252) 1,843 1,123 12,350 2,303 285 40 44.6 9.0 28.2 49.0 63.1 15.3 4.9 12.5 17.7 26.8 29.9 15.0 7.8 70.0 45.0 40.0 30.0 40.0 40.0 40.0 40.0 45.0 40.0 45.0 30.0 45.0 49.0 - 53 - Book value 100,436 3,378 - 4,272 130 224,829 203,418 28,491 - 2,292 11,257 18,482 14,348 36,019 1,084 Book value 110,395 158,779 4,247 50,541 12,535 3,688 4,311 136 140,101 203,730 45,900 3,079 47,008 7,492 19,944 756 1,988 - 614 - - - 1,843 1,123 12,350 2,303 285 40 Strength in Our ValueS 160 As of December 31, 2013 Total net asset Ownership (%) Net assets of associates (or joint ventures) Difference in fair value Intercompany transaction and others Book value Goodwill KAMCO Sixth Asset Securitization Specialty (*2) KAMCO Seventh Asset Securitization Specialty (*2) Woori Fine First Asset Securitization Specialty (*2) Woori Fine Second Asset Securitization Specialty Woori Fine Third Asset Securitization Specialty Woori Fine Fourth Asset Securitization Specialty Woori HB Third Asset Securitization Specialty Woori EA Nineteenth Asset Securitization Specialty Woori KA First Asset Securitization Specialty Chungdo Woori Century Security Co., Ltd. (*2) Woori Renaissance Holdings Woori Columbus First PEF Seoul Lakeside Co., Ltd. 2,595 419 717 15,472 17,711 24,683 (319) 7,040 16,420 21,284 66,942 63,510 (18,340) 45.0 45.0 45.0 45.0 45.0 45.0 40.0 40.0 45.0 49.5 51.6 2.0 47.5 1,163 184 318 6,963 7,970 11,108 (128) 2,816 7,389 10,538 39,806 1,227 (8,712) - - - - - - - - - - - - 160,928 - - - - - - - - - - - - - - - - - - - - - - - - - - 1,163 184 318 6,963 7,970 11,108 - 2,816 7,389 10,538 39,806 1,227 152,216 (*1) The net asset amount is after considering preferred stocks. (*2) The equity method of accounting has been applied reflecting the ownership ratios of the first-tier and the second-tier common stocks. 14. INVESTMENT PROPERTIES (1) Investment properties are as follows (Unit: Korean Won in millions): Acquisition cost Accumulated depreciation Net carrying value December 31, 2014 December 31, 2013 381,668 (24,118) 357,550 359,832 (19,212) 340,620 (2) Changes in investment properties are as follows (Unit: Korean Won in millions): For the year ended December 31, 2014 For the year ended December 31, 2013 Beginning balance Acquisition Disposal Depreciation Impairment loss (reversal) Transfer Classified to assets held for sale Foreign currencies translation adjustments Others Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance 340,620 - - (3,859) - 21,760 - 31 (1,002) - - 357,550 491,685 513 (6,583) (5,210) (855) (7,166) (3,594) (11) (592) (70,900) (56,667) 340,620 (3) Fair value of investment properties is amounting to 394,159 million Won and 352,297 million Won as of December 31, 2014 and 2013, respectively. The fair value of investment property, based on the assessment that was independently performed by external appraisal agencies, is classified as level 3 on the fair value hierarchy as of December 31, 2014 and 2013. - 54 - Woori Bank Annual Report 2014 161 (4) Rental fee earned from investment properties is amounting to million Won and 5,311 million Won and 4,135 million Won as of December 31, 2014 and 2013, respectively. 15. PREMISES AND EQUIPMENT (1) Premises and equipment are as follows (Unit: Korean Won in millions): Acquisition cost Accumulated depreciation Net carrying value Land 1,514,698 - 1,514,698 Building 817,559 (111,035) 706,524 Acquisition cost Accumulated depreciation Net carrying value Land 1,516,364 - 1,516,364 Building 797,672 (93,742) 703,930 December 31, 2014 Properties for business use 920,222 (710,634) 209,588 Structures in leased office 374,436 (304,251) 70,185 Construction in progress Structures 20 (15) 5 102 - 102 Total 3,627,037 (1,125,935) 2,501,102 December 31, 2013 Properties for business use 1,013,319 (757,637) 255,682 Structures in leased office 344,776 (284,347) 60,429 Construction in progress Structures 20 31 (15) - 5 31 Total 3,672,182 (1,135,741) 2,536,441 (2) Changes in premises and equipment are as follows (Unit: Korean Won in millions): For the year ended December 31, 2014 Beginning balance Acquisition Disposal Depreciation Classified to assets held for sale Foreign currencies translation adjustment Acquisition through business combination Transfer Others Ending balance Land 1,516,364 1,206 (4) - Building 703,930 24,950 - (23,390) Properties for business use 255,682 70,622 (31,245) (88,873) Structures in leased office 60,429 30,183 (1,195) (26,423) Construction in progress Structures 31 818 (314) - Total 5 2,536,441 127,779 - (32,758) - (138,686) - (2,019) (4,819) 46 39 10,719 (11,614) - 1,514,698 9,880 (10,146) 6,080 706,524 (66) 197 3,081 - 190 209,588 - 410 196 - 6,585 70,185 - (439) 6 - - 102 - - (6,904) 253 23,882 - (21,760) - - 12,855 5 2,501,102 Beginning balance Acquisition Disposal Depreciation Classified to assets held Land 1,827,026 5,695 (4,527) - Building 945,103 35,097 (2,781) (32,359) For the year ended December 31, 2013 Properties for business use 340,304 107,125 (4,791) (125,631) Structures in leased office 68,729 28,902 (1,566) (33,514) Construction in progress Structures 5 - - - 4,376 5,122 - - for sale Foreign currencies translation adjustment Others Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance (955) (1,834) (30) 3,318 (241) 9,627 - (586) 2,803 - 47 9,697 - (20) (8,584) (169,171) (104,957) (38,735) (1,805) (863) (144,992) 1,516,364 (143,725) 703,930 (24,807) 255,682 (10,061) 60,429 - 31 - 55 - Total 3,185,543 181,941 (13,665) (191,504) (2,789) (830) 16,861 (315,531) (323,585) 2,536,441 - - - - - 5 Strength in Our ValueS 162 16. INTANGIBLE ASSETS AND GOODWILL (1) Intangible assets are as follows (Unit: Korean Won in millions): Acquisition cost Accumulated depreciation Accumulated impairment losses Net carrying value December 31, 2014 Goodwill 107,541 - - 107,541 Software 163,675 (115,854) - 47,821 Industrial rights 554 (226) - 328 Development cost 180,983 (125,646) - 55,337 Others 409,972 (346,402) (2,763) 60,807 Membership deposit 27,366 - (3,472) 23,894 Total 890,091 (588,128) (6,235) 295,728 Acquisition cost Accumulated depreciation Accumulated impairment losses Net carrying value December 31, 2013 Core deposit 3,107 (3,107) - - Software 166,829 (111,531) - 55,298 Industrial rights 571 (284) - 287 Development cost 220,121 (129,692) - 90,429 Others 401,006 (299,107) (299) 101,600 Membership deposit 25,742 - (4,430) 21,312 Total 817,376 (543,721) (4,729) 268,926 (2) Changes in intangible assets are as follows (Unit: Korean Won in millions): Beginning balance Acquisition Disposal Amortization Impairment loss Foreign currencies translation adjustment Others Classified into disposal group held for sale Acquisition through business Goodwill - 1,418 - - - Software 55,298 20,418 (10,839) (16,923) - 63 - - - - (133) combination Ending balance 106,060 107,541 - 47,821 For the year ended December 31, 2014 Industrial rights Development cost Membership deposit 287 101 - (72) - - 12 - - 328 90,429 29,990 (36,092) (21,167) - Others 101,600 17,809 (38,564) (47,051) 127 21,312 1,925 (114) - (1,900) Total 268,926 71,661 (85,609) (85,213) (1,773) 1 (6,848) 9 1,158 80 2,591 153 (3,087) (976) - - (1,109) - 55,337 25,719 60,807 - 23,894 131,779 295,728 For the year ended December 31, 2013 Beginning balance Acquisition Disposal Amortization Impairment loss Foreign currencies translation adjustment Others Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance Goodwill 131,779 - - - (40,556) Core deposit 4,321 - - (855) (3,471) Software 45,240 28,533 (1,875) (17,138) - - 1,467 (152) - - (91,223) - - 5 - - - - Industrial rights 184 173 - (64) - - - - Development cost 77,369 43,289 (1,701) (27,509) - Others 113,907 37,696 (754) (57,436) (299) Membership deposit 60,607 9,513 (3,156) - (4,660) Total 433,407 119,204 (7,486) (103,002) (48,986) - 39 (59) 22,446 (85) 1,702 (139) 25,654 (596) (3,515) (28,605) (124,091) (777) 55,298 (6) 287 (462) 90,429 (10,386) 101,600 (14,004) 21,312 (25,635) 268,926 - 56 - Woori Bank Annual Report 2014 163 17. ASSETS HELD FOR SALE Assets held for sale recognized are 8,013 million Won and 587 million Won as of December 31, 2014 and 2013, respectively. 18. ASSETS SUBJECT TO LIEN AND ASSETS ACQUIRED THROUGH FORECLOSURES (1) Assets subjected to lien are as follows (Unit: Korean Won in millions): December 31, 2014 Collateral given to Amount Korea Investment Reason for collateral Margin deposit for future or Securities and others 105,521 option and others Due from banks Financial assets at FVTPL Industrial and financial debt securities and others Kiwoom Asset Management and others Financial institutions debt securities and others AFS financial assets Korean treasury and government agencies bonds Financial institutions debt securities and others HTM financial assets Korean treasury and Daewoo Securities and others BANCO BILBAO VIZCAYA ARGENARIA Bank of Korea and others Related to bonds sold under repurchase agreements (*2) 9,851 309,213 Collaterals for customer RP 926,796 Related to bonds sold under repurchase agreements (*2) 2,064,586 Settlement risk and others government agencies bonds Korean treasury and government agencies bonds and others Nomura Securities Co., Ltd. and others Related to bonds sold under 650,937 repurchase agreements (*2) Bank of Korea and others Credit Counselling & Recovery Service 3,063,448 Settlement risk and others 8,928 Leasehold rights and others Total 7,139,280 Land and building Due from banks Financial assets at FVTPL Financial institutions debt securities and others AFS financial assets Korean treasury and Collateral given to Samsung Securities and others Korea Securities Depository and others December 31, 2013 Amount (*1) Reason for collateral Margin deposit for future or 18,242 option and others 13,112,614 Collaterals for customer RP government agencies bonds Financial institutions debt securities and others Nomura Securities Co., Ltd. and others Bank of Korea and others 211,629 Related to bonds sold under repurchase agreements (*2) 2,336,541 Settlement risk and others HTM financial assets Korean treasury and government agencies bonds Korean treasury and government agencies bonds and others Nomura Securities Co., Ltd. and others 893,123 Related to bonds sold under repurchase agreements (*2) Bank of Korea and others Shinhan Card Co., Ltd. and others Total 3,974,617 Settlement risk and others 18,491 Leasehold rights and others 20,565,257 Land and building (*1) Including the amounts related to subsidiaries that are reclassified into disposal group held for sale and disposal groups held for distribution to owners. (*2) The assets are not derecognized as there are the repurchase agreements at predetermined price or original sale price added with certain rate of return. Collaterals are provided, and the purchasers are eligible to dispose or provide them as collateral. The Group recognizes the relevant amount as liability (bond sold under repurchase agreements) due to derecognition. - 57 - Strength in Our ValueS 164 (2) The carrying amounts of buildings acquired through foreclosure are as follow (Unit: Korean Won in millions): Land Building December 31, 2014 December 31, 2013 189 - - 329 (3) Loaned securities are as follows (Unit: Korean Won in millions): Financial assets at FVTPL Korean treasury and government agencies bonds December 31, 2014 December 31, 2013 (*) - 110,090 Loaned to Korea Money Brokerage Corp. and others AFS financial assets Korean treasury and government agencies securities Korean treasury and 14,737 35,880 government agencies bonds Total 686,096 700,833 320,013 465,983 Samsung Securities Co., Ltd. and others Korea Securities Depository (*) Including the amounts related to subsidiaries that are reclassified into disposal group held for sale and disposal groups held for distribution to owners. Loaned securities are lending of specific securities to borrowers who agree to return the same quantity of the same security at the end of lending period. As the Group does not derecognize these securities, there are no liabilities relates to loaned securities. (4) Collaterals held that can be disposed and re-subjected to lien regardless of defaults of counterparties Fair values of collaterals held can be disposed and re-subjected to lien regardless of defaults of counterparties as of December 31, 2014 and 2013 are as follows (Unit: Korean Won in millions): Securities Fair values of collaterals 6,790,215 Fair values of collaterals were disposed or re-subjected to lien - December 31, 2014 Securities Fair values of collaterals 4,913,671 Fair values of collaterals were disposed or re-subjected to lien 82,925 December 31, 2013 (*) (*) Including the amounts related to subsidiaries that are reclassified into disposal group held for sale and disposal groups held for distribution to owners. - 58 - Woori Bank Annual Report 2014 165 19. OTHER ASSETS Other assets are as follows (Unit: Korean Won in millions): Prepaid expenses Advance payments Non-operative assets Others Total December 31, 2014 December 31, 2013 131,267 1,097 189 12,604 145,157 174,344 739 329 3,474 178,886 20. FINANCIAL LIABILITY AT FVTPL (1) Financial liabilities at FVTPL consist of as follows (Unit: Korean Won in millions): Financial liabilities held for trading Financial liabilities designated at FVTPL Total December 31, 2014 2,153,782 521,572 2,675,354 December 31, 2013 2,105,301 401,947 2,507,248 (2) Financial liabilities held for trading are as follows (Unit: Korean Won in millions): Deposits due to Customers: Gold banking liabilities Derivative liabilities Total December 31, 2014 December 31, 2013 13,927 2,139,855 2,153,782 9,254 2,096,047 2,105,301 (3) Financial liabilities designated at FVTPL are as follows (Unit: Korean Won in millions): December 31, 2014 December 31, 2013 Equity linked securities index: Equity linked securities index in short position Debentures: Debentures in local currency Debentures in foreign currencies Sub-total Total 362,308 97,590 61,674 159,264 521,572 218,788 125,529 57,630 183,159 401,947 - 59 - Strength in Our ValueS 166 (4) Credit risk adjustment to financial liabilities designated at FVTPL is as follows (Unit: Korean Won in millions): Financial liabilities designated at FVTPL subject to credit risk adjustments Credit risk adjustments Accumulated changes in credit risk adjustments December 31, 2014 December 31, 2013 521,572 (2,612) (45,561) 401,947 (2,905) 2,422 Credit risk adjustments are applied to reflect the Group’s own credit risk when measuring derivative liabilities at fair value. The methodology to determine the adjustment incorporates the Group’s credit spread as observed through credit ratings. (5) The differences between financial liabilities at FVTPL’s carrying amount and nominal amount at maturity are as follows (Unit: Korean Won in millions): Carrying amount Nominal amount at maturity December 31, 2014 521,572 623,461 (101,889) December 31, 2013 401,947 520,650 (118,703) 21. DEPOSITS DUE TO CUSTOMERS Deposits sorted by interest type are as follows (Unit: Korean Won in millions): Deposits in local currency Demand deposits Time deposits Mutual funds Deposits on notes payables Deposits on CMA Certificate of deposits Other deposits Sub-total Deposits in foreign currencies Present value discount Total December 31, 2014 December 31, 2013 10,090,772 161,697,250 46,072 486,356 276,484 740,090 1,281,595 174,618,619 13,902,989 (5,143) 188,516,465 11,690,841 146,131,999 53,189 352,577 338,265 3,297,551 1,236,910 163,101,332 12,264,621 (42,309) 175,323,644 - 60 - Woori Bank Annual Report 2014 167 22. BORROWINGS AND DEBENTURES (1) Borrowings are as follows (Unit: Korean Won in millions): December 31, 2014 Lenders Interest rate (%) Amount Borrowings in local currency: Borrowings from the Bank of Korea Borrowings from government funds The Bank of Korea Small and Medium Business Corporation and others The Korea Development Bank and others 0.5 ~ 1.0 803,317 0.0 ~ 3.5 1,680,175 0.0 ~ 3.8 4,229,396 6,712,888 Others Sub-total Borrowings in foreign currencies: Borrowings in foreign currencies Offshore borrowings in foreign currencies Sub-total Bills sold Call money Bonds sold under repurchase agreements Present value discount Total The Export-Import Bank of Korea 0.0 ~ 3.7 7,921,772 Barclays Bank PLC Others Banks Other financial institutions 0.5 0.0 ~ 2.6 0.0 ~ 3.9 1.3 ~ 10.6 17,375 7,939,147 87,692 1,771,733 1,196,237 (102) 17,707,595 December 31, 2013 Lenders Interest rate (%) Amount Borrowings in local currency: Borrowings from the Bank of Korea Borrowings from government funds The Bank of Korea Small and Medium Business Others Sub-total Borrowings in foreign currencies: Corporation and others Seoul Metropolitan Government and others Borrowings in foreign currencies Offshore borrowings in foreign Bank of communication and others Toronto Dominion Bank SG and currencies Sub-total Bills sold Call money Bonds sold under repurchase agreements Present value discount Total others Others Banks Other financial institutions 0.5 ~ 1.0 513,841 0.0 ~ 3.5 1,790,146 0.0 ~ 3.8 4,185,524 6,489,511 0.0 ~ 12.0 6,225,236 0.8 0.0 ~ 2.7 0.0 ~ 7.8 1.4 ~ 10.6 21,106 6,246,342 111,096 4,871,976 513,442 (856) 18,231,511 (2) Debentures are as follows (Unit: Korean Won in millions): December 31, 2014 December 31, 2013 Interest rate (%) 0.8 ~ 10.5 3.4 ~ 10.3 Face value of bond Ordinary bonds Subordinated bonds Other bonds Sub-total Discounts on bond Total Interest rate (%) 0.8~10.5 3.4~10.3 Amount 14,687,044 6,995,786 53,006 21,735,836 (58,162) 21,677,674 Amount 18,564,367 6,248,349 51,601 24,864,317 (68,413) 24,795,904 - 61 - Strength in Our ValueS 168 23. PROVISIONS (1) Provisions are as follows (Unit: Korean Won in millions): Asset retirement obligation Provision for guarantee (*1) Provision for loan commitments Provision for credit card points Other provisions (*2) Total December 31, 2014 29,733 509,320 90,449 5,548 56,959 692,009 December 31, 2013 23,513 501,948 123,930 6,441 28,967 684,799 (*1) Provision for guarantee includes provision for financial guarantee of 159,149 million Won and 123,228 million Won as of December 31, 2014 and 2013, respectively. (*2) Other provisions consist of provision for litigation, provision for loss recovery, and others. (2) Changes in provisions except for asset retirement obligation are as follows (Unit: Korean Won in millions): Beginning balance Provisions provided Provisions used Reversal of unused amount Others Ending balance Beginning balance Provisions provided Provisions used Reversal of unused amount Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance Provision for credit card points For the year ended December 31, 2014 Provision for loan commitments 123,930 2,613 30 (36,158) 34 90,449 6,441 12,507 (13,400) - - 5,548 Other provisions 28,967 41,963 (26,208) - 12,237 56,959 Provision for credit card points For the year ended December 31, 2013 Provision for loan commitments 158,395 - 4,015 (13,216) 7,181 13,051 (13,018) (14) Other provisions 254,538 72,656 (86,559) (9,159) Provision for guarantees 501,948 46,191 (38,402) (31,877) 31,460 509,320 Provision for guarantees 421,520 96,164 1,470 (3,683) Total 661,286 103,274 (77,980) (68,035) 43,731 662,276 Total 841,634 181,871 (94,092) (26,072) (578) (361) - (12,006) (12,945) (12,945) 501,948 (24,903) 123,930 (759) 6,441 (190,503) 28,967 (229,110) 661,286 (3) Changes in asset retirement obligation are as follows (Unit: Korean Won in millions): Beginning balance Provisions provided Provisions used Depreciation Reversal of unused amount Increase in restoration costs and others Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance For the year ended December 31, 2014 For the year ended December 31, 2013 23,513 932 (746) 519 (143) 5,658 - - 29,733 22,024 4,553 (1,532) 433 (1,800) 9,175 (4,619) (4,721) 23,513 - 62 - Woori Bank Annual Report 2014 169 24. NET DEFINED BENEFIT LIABILITY 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 pay 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 Group is exposed to various risks through Defined Benefit Retirement Pension Plan and the major significant risks are as follows: Volatility of Asset The defined benefit obligation was estimated with a discount rate which is calculated based on the yield of blue chip corporate bonds in Korea. A deficit may occur if the rate of return on plan assets falls short of the discount rate. The plan assets include equity instruments are exposed to the related volatility and risks. Decrease in Yield of Blue Chip Bonds A decrease in yield of blue chip bonds may result in increase in defined benefit liability although the increase in the value of some debt securities in the defined benefit plan would set it off partially. Risk of Inflation Defined benefit obligations are correlated to the inflation rate; the higher the inflation rate is, the higher the level of liabilities. As a result, a deficit may occur in the plan. However, the plan assets are less impacted since the plan assets consist of mainly debt securities with fixed rates and equity instruments. (1) The net defined benefit liability is as follows (Unit: Korean Won in millions): Defined benefit obligation Fair value of plan assets Net defined benefit liability December 31, 2014 683,961 (608,370) 75,591 December 31, 2013 509,849 (438,247) 71,602 (2) Changes in the carrying value of defined benefit obligation are as follows (Unit: Korean Won in millions): Beginning balance Current service cost Interest cost Remeasurements Foreign currencies translation adjustments Retirement benefit paid Past service cost Curtailment or settlement Others Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance For the year ended December 31, 2014 509,849 118,651 20,016 72,990 (133) (32,422) - (5,570) 580 - For the year ended December 31, 2013 562,285 160,216 21,352 (7,299) 2,742 (38,787) 470 (4,082) 2,542 (68,177) - 683,961 (121,413) 509,849 - 63 - Strength in Our ValueS 170 (3) Changes in the plan assets are as follows (Unit: Korean Won in millions): Beginning balance Interest income Remeasurements Employer’s contributions Retirement benefit paid Settlement Others Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance For the year ended December 31, 2014 438,247 20,804 (5,504) 184,141 (22,849) (5,525) (944) - For the year ended December 31, 2013 395,989 21,085 (2,489) 147,633 (28,615) (3,725) 1,277 (60,348) - 608,370 (32,560) 438,247 (4) Plan assets mainly consist of deposits that represent 100% and 91.48% of plan assets as of December 31, 2014 and 2013, respectively. Among plan assets, realized returns on plan assets amount to 15,300 million Won and 18,596 million Won for the years ended December 31, 2014 and 2013, respectively. (5) Current service cost, net interest expense, past service cost, loss on the curtailment or settlement and remeasurements recognized in the consolidated statements of net income and total comprehensive income are as follows (Unit: Korean Won in millions): Current service cost Net interest expense Past service cost Loss on the curtailment or settlement Reclassification to discontinued operations Cost recognized in net income Remeasurements Cost recognized in total comprehensive income For the year ended December 31, 2014 118,651 (788) - (45) - 117,818 78,494 196,312 For the year ended December 31, 2013 160,216 267 470 (357) (40,681) 119,915 (4,810) 115,105 Retirement benefit service costs related to defined contribution plans are recognized 3,543 million Won and 2,967 million Won for the years ended December 31, 2014 and 2013, respectively. (6) Key actuarial assumptions used in defined benefit liability assessment are as follows: Discount rate Future wage growth rate Retirement rate Mortality rate December 31, 2014 3.29% 5.74% Issued by Korea Insurance Development Institute Issued by Korea Insurance Development Institute December 31, 2013 4.28% 5.72% Issued by Korea Insurance Development Institute Issued by Korea Insurance Development Institute (7) The sensitivity to actuarial assumptions used in the assessment of defined benefit obligation is as follows (Unit: Korean Won in millions): Discount rate Future wage growth rate Increase by 1% point Decrease by 1% point Increase by 1% point Decrease by 1% point Defined benefit obligation as of December 31, 2014 December 31, 2013 (46,842) 54,152 54,684 (48,082) (66,278) 76,296 76,040 (67,267) - 64 - Woori Bank Annual Report 2014 171 25. OTHER FINANCIAL LIABILITIES AND OTHER LIABILITIES Other financial liabilities and other liabilities are as follows (Unit: Korean Won in millions): December 31, 2014 December 31, 2013 Other financial liabilities: Payables Accrued expenses Borrowings from trust accounts Agency business revenue Foreign exchange payables Domestic exchange payables Miscellaneous liabilities Present value discount Sub-total Other liabilities: Deferred Income Other miscellaneous liabilities Sub-total Total 4,532,101 2,343,332 3,475,353 433,594 375,059 3,386,529 2,345,433 (1,714) 16,889,687 164,431 226,239 390,670 17,280,357 8,311,513 2,291,716 3,361,478 406,576 650,429 2,872,725 2,024,311 (3,801) 19,914,947 157,944 253,334 411,278 20,326,225 26. DERIVATIVES (1) Derivative assets and derivative liabilities are as follows (Unit: Korean Won in millions): December 31, 2014 Assets Liabilities Nominal amount Fair value hedge For trading For trading Interest rate: Interest rate futures Interest rate swap Long interest rate options Short interest rate options 21,640 106,014,214 1,658,180 1,788,180 - 182,990 - - - 1,097,849 11,985 - - 1,140,917 - 10,638 Currency: Currency futures Currency forwards Currency swaps Long currency option Short currency option Stock: Stock futures Stock swaps Long index option Short index option Others: Other futures Other swaps Long option Short option Total 382,577 40,078,267 20,902,464 1,433,050 1,614,028 46,400 10,000 352,943 767,978 592 53,035 249,081 261,883 175,634,512 - - - - - - - 13,071 - - - - - 196,061 - 415,209 504,858 45,617 - - 522 1,070 - - 342,778 572,985 - 18,176 - - - 19,916 - 4,481 29,876 - 2,111,467 - 4,468 - 29,977 2,139,855 - 65 - Strength in Our ValueS 172 December 31, 2013 Assets Liabilities Nominal amount Fair value hedge For trading Fair value Hedge For trading Interest rate: Interest rate futures Interest rate swap Long interest rate options Short interest rate options 31,722 122,337,393 737,963 2,722,963 - 131,386 - - - 996,279 11,355 - - 353,456 713,975 51,497 - - - 55,105 - - - 13 1,025,354 - 8,570 - - - - - - - - - - 1,772 - 375,259 655,198 - 8,392 - 22 - 20,340 1,416,265 28,984,290 19,653,370 642,132 644,770 54,126 10,000 273,511 1,065,422 - - - - - - - 24 - 660 12,607 160,430 8,346 178,755,970 - - - - 131,410 - 268 2,496 - 2,184,431 - - - - - 507 2,356 49 1,785 2,096,047 Currency: Currency futures Currency forwards Currency swaps Long currency option Short currency option Stock: Stock futures Stock swaps Long stock option Short stock option Others: Other futures Other forwards Other swaps Short option Total Derivatives held for trading purpose are classified into financial assets or liabilities at FVTPL and derivatives for hedging are stated as a separate line item in the consolidated statements of financial position (see Notes 7 and 20). (3) Gains or losses from valuation of financial instruments under hedge accounting are as follows (Unit: Korean Won in millions): Gains or losses from hedged items Gains or losses from hedging instruments For the year ended December 31, 2014 For the year ended December 31, 2013 (64,158) 63,442 114,053 (108,290) 27. DAY 1 PROFIT OR LOSS Changes in details of deferred day 1 profits or losses are as follows (Unit: Korean Won in millions): Beginning balance Acquisitions Amounts recognized in profits or losses Classified into disposal group held for sale Ending balance For the year ended December 31, 2014 For the year ended December 31, 2013 6,256 13,367 (6,124) - 13,499 65,267 100,110 (59,389) (99,732) 6,256 In case some variables to measure fair values of financial instruments were not observable or available in the market, valuation techniques were utilized to evaluate such financial instruments. Those financial instruments were recorded at the fair value produced by the valuation techniques as at the time of acquisition, even though there were difference noted between the transaction price and the fair value. The table above presents the difference yet to be realized as profit or losses. - 66 - Woori Bank Annual Report 2014 173 28. CAPITAL STOCK AND CAPITAL SURPLUS (1) The number of authorized shares and others are as follows: Authorized shares of common stock Par value Issued shares of common stock December 31, 2014 5,000,000,000 Shares 5,000 Won 676,278,371 Shares December 31, 2013 2,400,000,000 shares 5,000 Won 806,015,340 shares (2) Changes in numbers of issued shares of common stock are as follows (Unit: Shares): Beginning balance Changes due to the Spin-off Ending balance December 31, 2014 December 31, 2013 806,015,340 (129,736,969) 676,278,371 806,015,340 - 806,015,340 (3) Details of capital surplus are as follows (Unit: Korean Won in millions): Capital in excess of par value Other capital surplus Total December 31, 2014 December 31, 2013 269,533 21,533 291,066 109,025 67,477 176,502 29. HYBRID SECURITIES The bond-type hybrid securities classified as owner’s equity are as follows (Unit: Korean Won in millions): Issuance date June 20, 2008 Maturity June 20, 2038 November 22, 2011 November 22, 2041 March 8, 2012 April 25, 2013 March 8, 2042 April 25, 2043 November13, 2013 November 13, 2043 December 12, 2014 December 12, 2044 May 2, 2007 May 2, 2037 Local currency Foreign currency Issuance cost Total Annual interest rate (%) 7.7 5.9 5.8 4.4 5.7 5.2 6.2 December 31, 2014 December 31, 2013 255,000 310,000 190,000 500,000 200,000 160,000 930,900 (7,077) 2,538,823 - 310,000 190,000 - - - - (1,593) 498,407 With respect to the hybrid securities issued, the contractual agreements allow the Group to indefinitely extend the maturity date and defer the payment of interest. If the Group makes a resolution not to pay dividends on common stock, and then, the Group is exonerated from interest payment on the hybrid securities. - 67 - Strength in Our ValueS 174 30. OTHER EQUITY (1) Details of other equity are as follows (Unit: Korean Won in millions): Other comprehensive income: Gain on available-for-sale financial assets Share of other comprehensive income of joint ventures and associates Loss on foreign currency translation for foreign operations Remeasurement of the net defined benefit liability Cash flow hedges Sub-total Treasury shares (*) Other capital adjustments Capital adjustments from the Spin-off (Note 48) Capital adjustments from the merger with Woori Finance Holdings Others Sub-total Total December 31, 2014 December 31, 2013 300,994 204,110 2,779 4,690 (107,721) (119,375) (10,371) 66,306 (37,594) (2,185,666) (178,060) (58,124) (2,421,850) (2,393,138) (117,793) (59,877) (8,359) 22,771 (14) - - (58,124) (58,124) (35,367) (*) As of December 31, 2013, the Group holds 2,000 shares (14 million Won) of its treasury shares, through having acquired as a buyback of odd-lot share when exchanging the shares of Woori Investment & Securities. As of December 31, 2014, the Group is holding 3,007,144 shares (37,594 million Won) through the following transactions in the year ended at December 31, 2014: acquisition due to the spin-off of Kyongnam Bank and Kwangju Bank, 27,157 shares (345 million Won), acquisition due to the treasury stock trust, 2,913,155 shares (36,429 million Won), and acquisition due to the claims for stock repurchase from the shareholders who opposed to the merger, 64,832 shares (806 million Won). - 68 - Woori Bank Annual Report 2014 175 (2) Changes in the accumulated other comprehensive income are as follows (Unit: Korean Won in millions): For the year ended December 31, 2014 Beginning balance (*) Increase (decrease) on valuation Re- classification adjustments Income tax effect Changes due to the Spin-off Ending balance 279,398 354,856 (241,216) (27,102) (64,942) 300,994 5,753 (3,464) (244) 734 (136,576) 2,186 37,094 (10,425) - - 2,779 (107,721) (68,408) 7,928 88,095 (81,476) (6,844) 265,258 (900) (13,671) (218,937) 18,950 2,296 (15,547) 12,459 (80) (52,563) (119,375) (10,371) 66,306 Gain (loss) on available-for- sale financial assets Share of other comprehensive income (loss) of joint ventures and associates Gain (loss) on foreign currency translation of foreign operations Remeasurement of the net defined benefit liability Cash flow hedges Total (*) The beginning balance incorporates the accumulated other comprehensive income from subsidiaries that were reclassified into disposal group held for sale and disposal groups held for distribution to owners. For the year ended December 31, 2013 Increase (decrease) on valuation Beginning balance Re- classification adjustments Income tax effect Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance 313,180 8,089 (17,110) (24,761) (28,923) (46,365) 204,110 12,128 (7,269) - 894 (3,662) 2,599 4,690 (84,577) (70,728) (10) 18,739 18,783 - (117,793) (75,323) 8,693 174,101 2,508 (650) (68,050) - 811 (16,309) 4,407 (926) (1,647) (592) (15,426) (29,820) 9,123 (861) (35,504) (59,877) (8,359) 22,771 Gain (loss) on available-for- sale financial assets Share of other comprehensive income (loss) of joint ventures and associates Gain (loss) on foreign currency translation of foreign operations Remeasurement of the net defined benefit liability Cash flow hedges Total - 69 - Strength in Our ValueS 176 31. RETAINED EARNINGS (1) Details of retained earnings are as follows (Unit: Korean Won in millions): Legal reserve Legal reserve Other legal reserve Voluntary reserve Sub-total Business rationalization reserve Reserve for financial structure improvement Additional reserve Regulatory reserve for credit loss Revaluation reserve Other voluntary reserve Sub-total Retained earnings before appropriation Total i. Legal reserve December 31, 2014 December 31, 2013 1,075,539 - 1,075,539 - - - 858 - 8,656,000 8,656,858 3,380,293 13,112,690 1,463,754 41,472 1,505,226 8,000 235,400 8,134,544 1,298,335 760,455 11,700 10,448,434 2,211,698 14,165,358 In accordance with the Act of Banking Law, legal reserve are appropriated at least one tenth of the earnings after tax on every dividend declaration, not exceeding the paid in capital. This reserve may not be used other than for offsetting a deficit or transferring to capital. ii. Other legal reserve Other legal reserves were appropriated in the branches located in Japan, Vietnam and Bangladesh according to the banking laws of Japan, Vietnam and Bangladesh, and may be used to offset any deficit incurred in those branches. iii. Business rationalization reserve Pursuant to the Tax Exemption and Reduction Control Law, the Bank was previously required to appropriate, as a reserve for business rationalization, amounts equal to tax reductions arising from tax exemptions and tax credits up to December 31, 2001. The requirement was no longer effective from 2002. iv. Reserve for financial structure improvement In 2002, the Finance Supervisory Services recommended banks in Korea to appropriate at least ten percent of net income after accumulated deficit for financial structure improvement, until simple capital ratio equals 5.5 percent. This reserve is not available for payment of cash dividends; however, it can be used to reduce a deficit or be transferred to capital. v. Additional reserve and other voluntary reserve Additional reserve and other voluntary reserve were appropriated for capital adequacy and other management purpose. vi. Regulatory reserve for credit loss In accordance with Article 29 of the Regulation on Supervision of Banking Business (“RSBB”), if provisions for credit loss under K-IFRS for the accounting purpose are lower than provisions under RSBB, the Bank discloses such short fall amount as regulatory reserve for credit loss. vii. Revaluation reserve Revaluation reserve is the amount of limited dividends set by the board of directors to be the recognized as complementary capital when the gain or loss occurred in the property revaluation by adopting K-IFRS. - 70 - Woori Bank Annual Report 2014 177 (2) Changes in retained earnings are as follows (Unit: Korean Won in millions): Beginning balance Net income (loss) attributable to owners Changes due to the Spin-off Dividends on common stock Dividends on hybrid securities Others Ending balance For the years ended December 31 2014 13,112,690 1,213,980 (110,405) - (50,129) (778) 14,165,358 2013 13,881,378 (537,688) - (201,503) (29,399) (98) 13,112,690 32. REGULATORY RESERVE FOR CREDIT LOSS In accordance with Article 29 of the Regulation on Supervision of Banking Business (“RSBB”), if the estimated provisions for credit loss under K-IFRS for the accounting purpose are lower than those in accordance with the provisions under the RSBB, the Bank shall disclose the difference as the planned regulatory reserve for credit loss. (1) Balance of the planned regulatory reserve for credit loss is as follows (Unit: Korean Won in millions): Beginning balance Planned reversal of regulatory reserve (reverse) for credit loss Ending balance For the years ended December 31 December 31, 2014 1,800,387 December 31, 2014 1,685,623 (44,245) 1,756,142 114,764 1,800,387 (2) Planned reserves provided, adjusted net income after the planned reserves provided and adjusted earnings per share after the planned reserves provided are as follows (Unit: Korean Won in millions, except for earnings per share amount): Net income (loss) Provision (reversal) of regulatory reserve for credit loss Adjusted net income (loss) after the provision (reversal) of regulatory reserve Adjusted EPS (or loss per share) after the provision (reversal) of regulatory reserve For the years ended December 31 2013 (*2) 2014 (*1) 1,207,969 (713,435) (44,245) 114,764 1,252,214 (828,199) 1,512 (1,256) (*1) The amounts are calculated using the balance of regulatory reserve for credit loss of Woori Finance Holdings as of January 1, 2014. If it was calculated using the balance of Woori Bank, the required provision of regulatory reserve for credit loss amounted to 505,805 million Won, the adjusted net income after provision of regulatory reserve amounted to 702,164 million Won, and the adjusted EPS after the provision of regulatory reserve amounted to 746 Won, respectively. (*2) If it was calculated solely based on the owner’s equity of Woori Finance Holdings, the net loss before the provision of regulatory reserve amounted to 537,688 million Won, the required provision of regulatory reserve for credit loss amounted to 135,077 million Won, the adjusted net loss after provision of regulatory reserve amounted to 672,765 million Won, and the adjusted loss per share after the provision of regulatory reserve amounted to 871 Won, respectively. - 71 - Strength in Our ValueS 178 33. DIVIDENDS The Bank is to pay out 336,635 million Won (500 Won per share) as dividend for the year ended December 31, 2014, and it will be reviewed and approved at the shareholders’ meeting on March 27, 2015. As such, the separate statement of financial position as of December 31, 2014 does not incorporate such unpaid dividend. 34. NET INTEREST INCOME (1) Interest income recognized are as follows (Unit: Korean Won in millions): Financial assets at FVTPL AFS financial assets HTM financial assets Loans and receivables: Interest on due from banks Interest on loans Interest of other receivables Sub-total Total For the years ended December 31 2013 2014 70,653 359,986 441,626 104,633 8,183,844 50,498 8,338,975 9,211,240 109,202 376,933 483,515 120,041 8,349,900 53,792 8,523,733 9,493,383 (2) Interest expense recognized are as follows (Unit: Korean Won in millions): Interest on deposits due to customers Interest on borrowings Interest on debentures Interest expense on others Total For the years ended December 31 2013 2014 3,450,786 251,804 885,365 130,267 4,718,222 3,649,810 253,752 960,529 137,270 5,001,361 - 72 - Woori Bank Annual Report 2014 179 35. NET FEES AND COMMISSIONS INCOME (1) Fees and commissions income recognized are as follows (Unit: Korean Won in millions): Banking fees (*) Guarantee fees Fees from project financing Credit card fees CMA management fees Brokerage fees Others Total For the years ended December 31 2013 2014 641,332 75,997 12,717 746,811 - 61,472 59,686 1,598,015 671,257 91,312 12,697 668,910 789 62,933 57,326 1,565,224 (*) Banking fees include agency commission, fees income from electronic finance, fees income related to loan, fees for import letter of credit dealing, commission received on foreign exchange and others. (2) Fees and commissions expense incurred are as follows (Unit: Korean Won in millions): Fees paid Credit card commissions Brokerage commissions Others Total 36. DIVIDEND INCOME For the years ended December 31 2013 2014 115,480 555,496 168 9,856 681,000 117,268 511,776 210 9,469 638,723 Dividend income recognized are as follows (Unit: Korean Won in millions): Dividend from financial assets at FVTPL Dividend from AFS financial assets Total For the years ended December 31 2013 2014 3,178 93,634 96,812 7,283 80,358 87,641 - 73 - Strength in Our ValueS 180 37. GAINS (LOSSES) ON FINANCIAL ASSETS AT FVTPL (1) Details of gains or losses related to financial assets at FVTPL are as follows (Unit: Korean Won in millions): Gains (losses) on financial assets held for trading Gains (losses) of financial assets designated at FVTPL Total For the years ended December 31 2014 161,851 28,061 189,912 2013 129,972 (6,072) 123,900 (2) Gains (losses) on financial assets held for trading are as follows (Unit: Korean Won in millions): Financial Assets Securities at FVTPL Other financial assets Derivatives (for trading) Interest rates derivatives Currencies derivatives Equity derivatives Other derivatives Total Gain on valuation Gain on disposals Loss on valuation Loss on disposals Sub-total Gain on valuation Gain on disposals Loss on valuation Loss on disposals Sub-total Total Gain on transactions and valuation Loss on transactions and valuation Sub-total Gain on transactions and valuation Loss on transactions and valuation Sub-total Gain on transactions and valuation Loss on transactions and valuation Sub-total Gain on transactions and valuation Loss on transactions and valuation Sub-total Total For the years ended December 31 2014 2013 27,122 37,158 (19,441) (45,201) (362) 3,878 763 (4,315) (509) (183) (545) 7,151 53,783 (30,369) (68,671) (38,106) 6,296 812 (6,612) (350) 146 (37,960) 1,220,496 1,282,013 (1,261,289) (40,793) (1,282,666) (653) 2,681,812 3,642,244 (2,499,395) 182,417 (3,463,262) 178,982 61,840 45,758 (40,342) 21,498 (55,718) (9,960) 50,883 18,201 (51,609) (726) 162,396 161,851 (18,638) (437) 167,932 129,972 - 74 - Woori Bank Annual Report 2014 181 (3) Gains (losses) on financial assets designated at FVTPL are as follows (Unit: Korean Won in millions): For the years ended December 31 2014 2013 Gain (loss) on compound financial instruments: Gain (loss) on disposals of compound financial instruments Gain (loss) on valuation of compound financial instruments Sub-total Gain (loss) on other financial instruments: Gain (loss) on disposals of other financial instruments Gain (loss) on valuation of other financial instruments Sub-total Gain on other financial instruments: Gain on valuation of other financial instruments Sub-total Total 7,575 9,709 17,284 (123) 43 (80) 10,857 10,857 28,061 (7,842) (625) (8,467) 265 (920) (655) 3,050 3,050 (6,072) 38. GAINS (LOSSES) ON AFS FINANCIAL ASSETS Gains (losses) on AFS financial are as follows (Unit: Korean Won in millions): Gains on redemption of securities Gains on transaction of securities Impairment losses on securities Total For the years ended December 31 2013 2014 90 171,747 (240,761) (68,924) 43 59,355 (144,640) (85,242) 39. IMPAIRMENT LOSSES DUE TO CREDIT LOSS Impairment losses on loans and receivables, guarantees and loan commitment recognized for credit loss are as follows (Unit: Korean Won in millions): Provision due to credit loss Reversal of provision on guarantee Reversal of provision on loan commitment Total For the years ended December 31 2014 2013 (1,116,171) (14,314) 33,545 (1,096,940) (2,199,362) (93,311) 15,413 (2,277,260) - 75 - Strength in Our ValueS 182 40. OTHER NET OPERATING INCOMES (EXPENSES) (1) Administrative expenses recognized are as follows (Unit: Korean Won in millions): Employee benefits Short term employee benefits Salaries Others Retirement benefit service costs Redundancy payments Sub-total Depreciation and amortization Other administrative expenses Rent Taxes and dues Service charges IT expenses Telephone and communication expenses Operating promotion expenses Advertising Printing Traveling expenses Supplies Insurance premium Reimbursement Maintenance Water, light and heating Vehicle maintenance Others Sub-total Total For the years ended December 31 2014 2013 1,196,332 360,158 121,361 70,459 1,748,310 223,899 266,369 101,753 215,448 106,386 58,102 44,382 51,944 10,712 7,702 6,908 5,899 18,937 14,050 15,163 10,860 52,095 986,710 2,958,919 1,186,568 346,141 122,882 58,215 1,713,806 232,737 231,422 113,469 206,314 104,690 56,319 44,963 56,269 9,596 6,848 6,806 4,428 16,568 13,139 15,039 11,817 57,942 955,629 2,902,172 (2) Other operating incomes recognized are as follows (Unit: Korean Won in millions): Gains on transaction of foreign exchange Gains on disposal of loans and receivables Gains on transactions of derivatives Gains on fair value hedged items Others (*) Total For the years ended December 31 2014 2013 1,883,808 132,846 84,533 23,318 132,666 2,257,171 2,572,513 115,623 11,486 127,558 279,785 3,106,965 (*) As of December 31, 2014 and 2013, 102,541 million Won and 215,845 million Won that the Group is to receive from other financial institutions are included in accordance with the agreement of financial institutions council. (3) Other operating expenses recognized are as follows (Unit: Korean Won in millions): Losses on transaction of foreign exchange KDIC deposit insurance fees Contribution to miscellaneous funds Losses on disposal of loans and receivables Losses related to derivatives Losses on fair value hedged items Others (*) Total For the years ended December 31 2014 2013 1,902,316 259,140 338,386 30,480 21,091 87,476 292,548 2,931,437 2,439,398 236,845 326,626 22,528 119,776 13,505 74,110 3,232,788 (*) As of December 31, 2014 and 2013, 218,072 million Won and 35,085 million Won which the Group is to carry out payments to other creditor financial institutions are included in accordance with the creditor financial institutions committee agreement. - 76 - Woori Bank Annual Report 2014 183 41. OTHER NON-OPERATING INCOMES (EXPENSES) (1) Details of gain or loss on valuation of investments in joint ventures and associates are as follows (Unit: Korean Won in millions): Gain on valuation Loss on valuation Impairment loss Total For the years ended December 31 2014 2013 37,427 (70,008) (35,399) (67,980) 30,182 (31,459) - (1,277) (2) Other non-operating incomes and expenses recognized are as follows (Unit: Korean Won in millions): Other non-operating incomes Other non-operating expenses Total For the years ended December 31 2014 2013 134,355 (129,688) 4,667 145,131 (95,754) 49,377 (3) Other non-operating incomes recognized are as follows (Unit: Korean Won in millions): Rental fee income Gains on disposal of investment in joint ventures and associates Gains on disposal of premises and equipment and other assets Reversal of impairment loss on premises and equipment and other assets Others Total For the years ended December 31 2014 2013 8,058 31,414 1,398 533 92,952 134,355 6,101 19,974 9,509 46 109,501 145,131 (4) Other non-operating expenses recognized are as follows (Unit: Korean Won in millions): For the years ended December 31 2014 2013 Depreciation on investment properties Interest expenses of rent leasehold deposits Losses on disposal of investment in joint ventures and associates Losses on disposal of premises and equipment and other assets Impairment losses on premises and equipment and other assets Donation Others Total 4,016 1,026 1,765 1,709 2,226 52,770 66,176 129,688 3,573 965 4,464 681 1,999 52,345 31,727 95,754 - 77 - Strength in Our ValueS 184 42. INCOME TAX EXPENSE (1) Income tax expenses are as follows (Unit: Korean Won in millions): Current tax expense Current tax expense in respect of the current year Adjustments recognized in the current period in relation to the current tax of prior periods Sub-total Deferred tax expense Deferred tax expense (benefit) relating to the origination and reversal of temporary differences Deferred tax charged direct to equity Sub-total Income tax expense Income tax expense for continuing operations Income tax expense for discontinued operations For the years ended December 31 2014 2013 514,819 (3,750) 511,069 (665,974) 8,923 (657,051) (145,980) 288,195 (434,175) 170,478 (3,625) 166,853 457,450 (1,647) 455,803 622,656 35,096 587,560 (2) Income tax expense (benefit) can be reconciled to net income (loss) before income tax expense as follows (Unit: Korean Won in millions): Net income (loss) before income tax expense Income from continuing operations before income tax Income (loss) from discontinued operations before income tax Tax calculated at statutory tax rate (*1) Adjustments Effect of income that is exempt from taxation Effect of expense that is not deductible in determining taxable profit Effect from the recognition of loss carry-forward and net taxable differences due to investments in subsidiaries and joint ventures that has not been recognized in the previous periods Net taxable differences due to investments in subsidiaries (*2) Adjustments recognized in the current period in relation to the current tax of prior periods Others Income tax expense (benefit) Sub-total Income tax expense for continuing operations Income tax expense (benefit) for discontinued operations Effective tax rate Effective tax rate for continuing operations Effective tax rate for discontinued operations (*3) For the years ended December 31 2014 1,061,988 834,395 227,593 256,540 (45,528) 342,057 2013 (90,779) 287,667 (378,446) (22,432) (85,051) 57,713 - 669,595 (606,908) (3,750) (88,391) (402,520) (145,980) 288,195 (434,175) 34.54% - - (3,625) 6,456 645,088 622,656 35,096 587,560 12.2% - (*1) Applicable income tax rate; 1) 11% for below 200 million Won, 2) 22% for from 200 million Won to 20 billion Won, 3) 24.2% for above 20 billion Won. (*2) The impact of decease in the deferred tax liability, which was recognized as at the end of 2013, since the expected income tax expense derived from the spin-off of Kyongnam Bank and Kwangju Bank was exempted based on the change of Restriction of Special Tax Act in Korea effective from May 14, 2014. (*3) The effective tax rate is not produced due to the income tax benefit and net loss before income tax expense for the year ended December 31, 2014 and 2013, respectively. - 78 - Woori Bank Annual Report 2014 185 (3) Deferred tax assets and liabilities are as follows (Unit: Korean Won in millions): For the year ended December 31, 2014 Beginning balance (*) Merge and Spin-off Recognized as income (loss) Recognized as other comprehensive income (loss) Ending balance 232,727 (76,852) 121,906 (37,264) (65,697) (69,615) 10,195 (71,812) 107,498 (99,906) 91,404 38,795 - (75,228) - - - - - - - - - - - - - (3,757) 190,183 - 422,910 (6,293) (22,411) (105,556) (101,725) 975 21,156 (11,174) (9,397) 10,187 (3,274) (16,664) 24,898 (35,573) (6,874) (1,766) - 115,766 - - - - - 19,270 5 - - - (12,426) (48,438) (75,094) (59,428) 6,921 (88,476) 151,666 (135,474) 84,530 37,029 - 24,355 (542,643) (436,492) 10,376 6,619 508,757 657,051 23,510 8,923 - 236,101 Gain (loss) on financial assets at FVTPL Gain (loss) on available-for-sale financial assets Gain (loss) on valuation using the equity method of accounting Gain (loss) on valuation of derivatives Accrued income Provision for loan losses Loan and receivables written off Loan origination costs and fees Defined benefit liability Deposits with employee retirement insurance trust Provision for guarantee Other provision Investments in joint ventures and associates Others Assets as held for sale / Disposal group held for distribution to owners Net deferred tax assets (*) The beginning balance incorporates the deferred tax assets (liabilities) from subsidiaries that were reclassified into disposal group held for sale and disposal groups held for distribution to owners. For the year ended December 31, 2013 Beginning balance Recognized as income (loss) Recognized as other comprehensive income (loss) Classified into disposal group held for sale Classified into disposal group held for distribution to owners Ending balance Gain (loss) on financial assets at FVTPL 238,074 25,061 - (31,882) 1,474 232,727 Gain (loss) on available-for-sale financial assets (112,225) 10,338 Gain (loss) on valuation using the equity method of accounting Gain (loss) on valuation of derivatives Accrued income Provision for loan losses Loan and receivables written off Loan origination costs and fees Defined benefit liability Deposits with employee retirement insurance trust Provision for guarantee Other provision Investments in joint ventures and associates Others Net deferred tax assets 52,311 86,776 (58,273) (153,398) (7,842) 10,612 (73,259) 110,879 (93,912) 80,149 101,329 23,495 3,784 (61,499) (85) (23,926) 33,992 (44,330) 15,232 (5,749) 3,201 1,096 93 - - - - 428 895 - - 45,852 (24,018) (76,852) (20,651) 2,374 121,906 (2,721) 22,662 (274) (332) 16,914 (12,949) 12,554 - (3,867) (74,643) 14,755 (34,582) 142 61,255 - - 8,459 (24,852) 24,887 (3,977) (52,918) 606,909 (22,510) 577,225 (37,264) (65,697) (69,615) 10,195 (71,812) 107,498 (99,906) 91,404 38,795 - (75,228) 106,151 - (73,487) 20,958 (508,758) (10,134) (455,803) (23,508) 16,148 (1,647) - 79 - Strength in Our ValueS 186 (4) Unrealizable temporary differences are as follows (Unit: Korean Won in millions): Deductible temporary differences Unused tax losses Taxable temporary differences Total December 31, 2014 December 31, 2013 120,120 12,562 (10,340,413) (10,207,731) 174,200 283,523 (3,323,318) (2,865,595) (5) Deferred tax charged direct to equity is as follows (Unit: Korean Won in millions): Loss on available-for-sale financial assets Share of other comprehensive loss of jointly controlled entities and associates Gain on overseas business translation Remeasurements Loss on valuation of cash flow hedges Total December 31, 2014 (96,421) December 31, 2013 (162,476) 782 34,424 37,674 - (23,541) (3,166) 43,429 25,982 (1,206) (97,437) (6) Current tax assets and liabilities are as follows (Unit: Korean Won in millions): Current tax assets Current tax liabilities December 31, 2014 4,845 298,762 December 31, 2013 143,101 9,980 (7) Deferred tax assets and liabilities are as follows (Unit: Korean Won in millions): Deferred tax assets Deferred tax liabilities Net deferred tax assets 43. EARNINGS PER SHARE (“EPS”) December 31, 2014 257,858 21,757 236,101 December 31, 2013 155,256 49,105 106,151 Basic EPS is calculated by dividing net income by weighted average number of common shares outstanding (Unit: Korean Won in millions except for EPS and number of shares): Net income (loss) attributable to common shareholders Dividends to hybrid securities Net income (loss) attributable to common shareholders Net income from continuing operations Net income (loss) from discontinued operations Weighted average number of common shares outstanding Basic Earnings (loss) Per Share Basic Earnings Per Share for continuing operations Basic Earnings (loss) Per Share for discontinued operations For the years ended December 31 2014 2013 1,213,980 (50,129) 1,163,851 385,160 778,691 718 million shares 1,621 536 1,085 (537,688) (29,399) (567,087) 132,612 (699,699) 806 million shares (704) 165 (869) Diluted EPS is equal to basic EPS because there is no dilution effect for the year ended December 31, 2014 and 2013. - 80 - Woori Bank Annual Report 2014 187 44. CONTINGENT LIABILITIES AND COMMITMENTS (1) Details of guarantees are as follow (Unit: Korean Won in millions): Confirmed guarantees Guarantee for loans Acceptances Letters of guarantees Other confirmed guarantees Total Unconfirmed guarantees Local letter of credit Letter of credit Other unconfirmed guarantees Total CP purchase commitments and others December 31, 2014 December 31, 2013 (*) 109,213 710,443 126,279 8,328,515 9,274,450 575,919 4,373,378 1,590,332 6,539,629 2,213,840 211,239 876,937 173,292 8,545,335 9,806,803 743,134 5,023,848 1,779,210 7,546,192 5,447,858 (*) Including the amounts related to subsidiaries that are reclassified into disposal group held for sale and disposal groups held for distribution to owners. (2) Details of loan commitments and others are as follow (Unit: Korean Won in millions): Loan commitments Other commitments December 31, 2014 89,637,659 4,061,230 December 31, 2013 (*) 90,728,033 3,146,251 (*) Including the amounts related to subsidiaries that are reclassified into disposal group held for sale and disposal groups held for distribution to owners. (3) Litigation case 1) The Group had filed lawsuits as follows (Unit: Korean Won in millions except for number of cases): December 31, 2014 December 31, 2013 (*) Number of cases Amount of litigation Allowance for litigations As plaintiff 516 cases 827,222 As defendant 298 cases 293,527 16,343 As plaintiff 337 cases 1,346,034 As defendant 475 cases 841,278 206,745 (*) Including the amounts related to subsidiaries that are reclassified into disposal group held for sale and disposal groups held for distribution to owners. 2) Consumer Dispute Resolution Committee in Korea advised domestic banks that they should return the mortgage placement cost which the banks had burdened to debtors when originating loans, but the banks, including Woori Bank, declined such arbitration. In respect of the case, the Group has faced 44 cases of lawsuits as of December 31, 2014, and it is expected that would follow additional lawsuits in the foreseeable future. However, the Group has determined that it is not probable that an outflow of resources due to the lawsuits, therefore it has not provided any provisions. 3) As of December 31, 2014, the Group (Woori Bank), along with other 13 financial institutions including Seoul Guarantee Insurance, has filed a lawsuit against Samsung Group and its associates as defendant in respect of the claim of return of guaranteed fund which was related to the filing of court administration of Renault Samsung Motors. With respect to the lawsuit, on January 29, 2015, the supreme court of Korea made final judgment that the plaintiff should pay the guaranteed fund to the Group and other financial institutions. The amount that the Group is to be paid, 132,784 million Won, shall be recognized as gain in the year ended at December 31, 2015, in accordance with K-IFRS 1037 Provisions, contingent liabilities and contingent assets. - 81 - Strength in Our ValueS 188 45. RELATED PARTY TRANSACTIONS Related parties of the Group and major transactions with the related parties for the years ended December 31, 2014 and 2013 are as follows: (1) Related parties Controlling party (Government related entity) Korea deposit insurance corporation (KDIC) Woori Renaissance Holdings, Joint ventures and associates Woori Blackstone Korea Opportunity Private Equity Fund I., Korea Credit Bureau Co., Ltd., Phoenix Digital Tech Co., Ltd., Korea Finance Security Co., Ltd., Woori Service Networks Co., Ltd., Kumho Tires Co., Ltd., United PF 1st Corporate Financial Stability, Chin Hung International, Inc., Poonglim Co., Ltd., Ansang Tech Co., Ltd., Hana Construction Co., Ltd., STX Engine Co., Ltd., Samho International Co., Ltd., Force TEC Co., Ltd., Woori Columbus 1st Private Equity Fund, STX Corporation, Osung LST Co., Ltd. (2) Assets and liabilities from transactions with related parties are as follows (Unit: Korean Won in millions): Related party KDIC Controlling party (Government related entity) Joint ventures Woori Aviva Life Insurance Co., Ltd. (*) Associates Kumho Tires Co., Ltd. Korea Credit Bureau Co., Ltd. Korea Finance Security Co., Ltd. Woori Service Networks Co., Ltd. A title of account Loans Provision for credit loss Other assets Deposits Other liabilities Loans Provision for credit loss Other assets Deposits Other liabilities Loans Provision for credit loss Other assets Deposits Other liabilities Loans Other assets Deposits Other liabilities Loans Provision for credit loss Deposits Other liabilities Loans Provision for credit loss Deposits Other liabilities December 31, 2014 December 31, 2013 314 (108) 691,101 1,157,232 12,252 - - - - - 334,948 (2,968) - 80,978 87 2 - 3,215 19 46 (1) 2,738 12 26 (1) 3,169 115 16 (232) 1,214,695 1,259,529 9,093 688 (4) 339 6,834 475 383,117 (37,807) 71,650 58,472 580 2 1,256 4,264 106 59 - 4,070 15 42 - 2,642 71 United PF 1st Corporate Financial Stability Deposits 30 38 Woori Blackstone Korea Opportunity Private Equity Fund 1st Other assets 626 32,198 - 82 - Woori Bank Annual Report 2014 189 Related party A title of account Associates Woori Columbus 1st Private Equity Fund Other assets December 31, 2014 December 31, 2013 589 309 DKT (*) Chin Hung International Inc. Poonglim Industrial Co., Ltd. Phoenix Digital Tech Co., Ltd. Ansang Tech Co., Ltd. Samho International Co., Ltd. Force TEC Co., Ltd. Hana Engineering & Construction Co., Ltd. STX Engine Co., Ltd. STX Corporation Osung LST Co. ,Ltd. Loans Provision for credit loss Other assets Deposits Other liabilities Loans Provision for credit loss Deposits Other liabilities Loans Provision for credit loss Other assets Deposits Other liabilities Loans Provision for credit loss Deposits Other liabilities Loans Provision for credit loss Other assets Loans Provision for credit loss Deposits Other liabilities Loans Provision for credit loss Deposits Other liabilities Loans Provision for credit loss Deposits Loans Provision for credit loss Other assets Deposits Other liabilities Loans Provision for credit loss Deposits Other liabilities Loans Provision for credit loss Deposits Other liabilities - - - - - 42,929 (12,439) 7,615 11 24,999 (3,123) 1 20,878 12 3,768 (109) 306 6 38 (38) - 43,251 (8,826) 132,190 205 24,258 (1,551) 139 11 169 (169) 49 163,374 (24,735) 27 3,701 63 182,195 (23,442) 25,823 18 5,639 (561) 5,133 14 55,252 (493) 93 300 10 46,122 (39,767) 1,073 1 36,874 (266) - 15,508 39 1,213 (72) 495 11 223 (142) 10 52,528 (33,656) 149,685 89 46,483 (27,092) 297 - 169 (169) 903 104,662 (10,944) - 6,023 114 - - - - - - - - (*) Excluded from the related party through disposal or spin-off of subsidiaries during the year ended December 31, 2014. - 83 - Strength in Our ValueS 190 (3) Gain or loss from transactions with related parties are as follows (Unit: Korean Won in millions): Related party KDIC Controlling party (Government related entity) Joint ventures Woori Aviva Life Insurance Co., Ltd. (*) A title of account Interest income Interest expenses Reversal of provision for credit loss Fees income Other income Interest expenses Fees expenses Other expenses Reversal of provision for credit loss Woori Renaissance Holdings Interest expenses Reversal of provision for credit loss Woori New Alpha Fund (*) Fees income Associates Kumho Tires Co., Ltd. Korea Finance Security Co., Ltd. Interest income Fees income Interest expenses Impairment losses due to credit loss (Reversal of provision for credit loss) Other income Interest expenses Fees expenses Impairment losses due to credit loss Korea Credit Bureau Co., Ltd. Interest expenses Fees expenses Woori Service Networks Co., Ltd. Other income Interest expenses Fees expenses Other expenses Impairment losses due to credit loss (Reversal of provision for credit loss) United PF 1st Corporate Financial Stability Interest expenses Woori Blackstone Korea Opportunity Private Equity Fund 1st Fees income Other income Other expenses Woori Columbus 1st Private Equity Fund Fees income DKT (*) Interest income Other income Interest expenses Reversal of provision for credit loss - 84 - For the years ended December 31 2014 26,577 17,920 (124) - - - - - - - - - 732 6 218 2013 41,521 14,801 (65) 2,396 3,376 43 56 163 (5) 2 (144) 605 1,008 6 408 (33,020) 1,969 - 53 42 3 72 1,784 27 95 610 262 2 - 2,527 - - 589 - - - - 55 99 - - 117 - 29 69 - 282 (1) 34 4,098 9,111 996 - 1,521 3,082 64 (123) Woori Bank Annual Report 2014 191 Related party A title of account Associates Chin Hung International Inc. Poonglim Industrial Co., Ltd. Phoenix Digital Tech Co., Ltd. Ansang Tech Co., Ltd. Samho International Co., Ltd. Force TEC C Co., Ltd. Fees income Interest expenses Impairment losses due to credit loss (Reversal of provision for credit loss) Interest expenses Impairment losses due to credit loss (Reversal of provision for credit loss) Interest expenses Impairment losses due to credit loss (Reversal of provision for credit loss) Impairment losses due to credit loss (Reversal of provision for credit loss) Fees income Interest expenses Reversal of provision for credit loss Interest expenses Impairment losses due to credit loss (Reversal of provision for credit loss) Hana Engineering & Reversal of provision for Construction Co., Ltd. credit loss STX Engine Co., Ltd. STX Corporation Osung LST Co. ,Ltd. Interest income Fees income Interest expenses Impairment losses due to credit loss Interest expenses Reversal of provision for credit loss Interest income Interest expenses Reversal of provision for credit loss For the years ended December 31 2014 2013 1 31 1 98 (27,328) 9,324 22 75 2,857 12 37 (104) 5 1,270 (150) 11 (224) 142 - 747 (24,793) (10,268) 3 2 (25,532) 26,273 - 308 81 48 (158) - - 49 13,787 9,946 6 (146,680) 113 31 (4,819) - - - - - (*) Excluded from the related party through disposal or spin-off of subsidiaries during the year ended December 31, 2014. - 85 - Strength in Our ValueS 192 (4) Guarantees provided to the related parties are as follows (Unit: Korean Won in millions): KDIC Kumho Tires Co., Inc. 1,500,386 - 2,000,684 Loan commitment 208 Loan commitment in foreign December 31, 2014 December 31, 2013 Korea Finance Security Co., Ltd. Korea Credit Bureau Co., Ltd. Woori Service Networks Co., Ltd. Chin Hung International Inc. DKT Co., Ltd. (*) Woori Blackstone Korea Opportunity Private Equity Fund I Phoenix Digital Tech Co., Ltd. STX Engine Co., Ltd SamHo Co., Ltd. Force TEC Co., Ltd. STX corporation 18,110 - - 88,638 214 33 179 40,630 - - - - 261 81,431 4,600 2,360 27,299 6,325 30,062 13,009 currency 18,255 Letter of credit 128 Endorsed notes 16,739 Commitments on loss sharing 113,453 Loan commitment 51 Loan commitment 33 Loan commitment 158 Loan commitment 40,630 Loan commitment 17,920 Loan commitment 5,662 Derivative commitment 15,565 Securities purchase contract 10,000 Contribution commitment 3,797 Loan commitment 21,213 Letter of credit 38,757 Loan commitment 1,930 Letter of credit - Loan commitment - Loan commitment - Letter of credit and others - Loan commitment (*) Excluded from the related party through disposal or spin-off of subsidiaries during the year ended December 31, 2014. (5) Compensation for key management is as follows (Unit: Korean Won in millions): Short term benefits Severance payments Total For the years ended December 31 2013 (*) 2014 11,542 464 12,006 24,378 1,627 26,005 (*) As the scope of the compensation for key management disclosure has changed, the comparative amounts are restated. - 86 - Woori Bank Annual Report 2014 193 46. TRUST ACCOUNTS (1) Trust accounts of the Group are as follows (Unit: Korean Won in millions): Total assets Operating income Trust accounts December 31, 2014 31,225,968 December 31, 2013 52,811,488 For the year ended December 31, 2014 For the year ended December 31, 2013 1,457,407 751,425 (2) Receivables and payables from the transactions between the Group and trust accounts are as follows (Unit: Korean Won in millions): Receivables Trust fees receivables Payables Borrowings from trust accounts Accrued interest expenses on borrowings from trust accounts Total December 31, 2014 December 31, 2013 17,956 2,949,097 - 2,949,097 27,120 3,233,699 303 3,234,002 (3) Significant transactions between the Group and trust accounts are as follows (Unit: Korean Won in millions): Revenue Trust fees Intermediate termination fees Total Expense Interest expenses on borrowings from trust accounts For the years ended December 31 2014 2013 41,829 - 41,829 50,847 1,603 52,450 78,114 97,748 (4) Principal guaranteed trusts and principal and fixed rate of return guaranteed trusts. 1) The carrying value of principal guaranteed trusts and principal and fixed rate of return guaranteed trusts are as follows (Unit: Korean Won in millions): December 31, 2014 December 31, 2013 Principal guaranteed trusts Old-age pension trusts Personal pension trusts Pension trusts Retirement trusts New personal pension trusts New old-age pension trusts Sub-total Principal and fixed rate of return guaranteed trusts Development trusts Unspecified money trusts Sub-total Total 5,619 528,680 640,275 75,847 8,897 3,859 1,263,177 19 857 876 1,264,053 6,815 565,665 624,538 86,477 10,624 5,360 1,299,479 19 879 898 1,300,377 - 87 - Strength in Our ValueS 194 2) As of December 31, 2014 and 2013, the amounts that the Group has to pay by the capital guaranteed contract or the operating results of the principal and return guaranteed trusts are as follows (Unit: Korean Won in millions): Liabilities for the account (subsidy for trust account adjustment) December 31, 2014 December 31, 2013 15 11 47. DISPOSAL GROUP HELD FOR SALE AND NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS (1) Summary In accordance with Public Funds Oversight Committee’s plan of the privatization of Woori Finance Holdings Co., Ltd. on June 26, 2013, the Group reclassified the related assets and liabilities of Woori Investment Securities Co., Ltd, Woori Financial Co., Ltd., Woori F&I Co., Ltd., Woori Asset Management Co., Ltd., Woori Aviva Life Insurance and Woori Savings Bank into disposal group held for sale and presented the related gains or losses as net income (loss) from discontinued operations as at the end of 2013. (2) As of December 31, 2013, details of assets and liabilities classified as disposal group asset held for sale are as follows (Unit: Korean Won in millions): December 31, 2013 Disposal group held for sale Cash and cash equivalents Financial assets at FVTPL Available-for-sale financial assets Held-to-maturity financial assets Loans and receivables Investments in joint ventures and associates Investment properties Premises and equipment Intangible assets and goodwill Current tax assets Deferred tax assets Derivative assets Others Total Liabilities directly associated with Disposal group held for sale Financial liabilities at FVTPL Deposits due to customers Borrowings Debentures Provisions Provision for retirement Current tax liabilities Deferred tax liabilities Derivative liabilities Other financial liabilities Other liabilities Total 303,202 21,102,011 1,103,146 3,025 11,738,411 120,805 1,329 15,855 33,178 17,111 102,843 11,279 132,610 34,684,805 10,028,166 1,988,495 13,502,487 4,045,486 17,565 7,829 8,151 68,261 2,257 2,310,746 68,183 32,047,626 At the end of 2013, the Group measured fair value of the disposal group held for sale based on market approach reflecting current market values of the businesses. Total net fair value was the amount that final bid price less incidental cost for disposal, which was amounting to 3,311,175 million Won, was classified into level 1 in the fair value hierarchy. - 88 - Woori Bank Annual Report 2014 195 The Group measured a disposal group as held for sale at the lower of its carrying amount and the net fair value and the impairment loss on disposal group held for sale was recognized 793,108 million Won and was included in income (loss) from discontinued operations of comprehensive income for the year ended December 31, 2013. (3) Details of discontinued operations are as follows (Unit: Korean Won in millions): For the years ended December 31 2014 2013 I. Operating income Net interest income Interest income Interest expense Net fees and commissions income Fees and commissions income Fees and commissions expense Dividend income Net loss on financial instruments at fair value through profit or loss Net loss on available-for-sale financial assets Impairment losses on credit loss Other net operating expenses II. Non-operating loss Share of profits of joint ventures and associates Other non-operating expenses III. Net income before income tax expense Income tax expense IV. Sub-total V. VI. Impairment of assets held for sale VII. Income tax benefit for Impairment VIII. Gain on disposal of disposal group held for sale IX. X. Income tax expense related to the gain on disposal Income from discontinued operations 17,616 237,230 391,618 (154,388) 117,373 152,184 (34,811) 24,720 (32,104) (19,146) (23,753) (286,704) (3,120) 616 (3,736) 14,496 (117,878) (103,382) (7,469) 2,020 113,012 (26,667) (22,486) 183,197 637,523 1,190,183 (552,660) 354,954 439,125 (84,171) 26,789 (114,652) (262) (147,924) (573,231) (34,213) 19,520 (53,733) 148,984 (150,633) (1,649) (793,108) 191,970 - - (602,787) (4) Details of cash flows in discontinued operations are as follows (Unit: Korean Won in millions): Cash flows from operating activities: Cash flows from investing activities: Cash flows from financing activities: For the years ended December 31 2013 2014 326,023 (258,244) 143,289 (3,978,948) 105,717 3,906,802 - 89 - Strength in Our ValueS 196 (5) During the year ended December 31, 2014, the Group disposed Woori Investment and Securities, Woori Financial, Woori F&I, Woori Asset Management, Woori Aviva Life Insurance, and Woori Savings Bank during the current year. The book values of net assets disposed are as follows (Unit: Korean Won in millions): Assets: Cash and cash equivalents Financial assets at FVTPL Available-for-sale financial assets Held-to-maturity financial assets Loans and receivables Investments in joint ventures and associates Other assets Total Liabilities: Financial liabilities at FVTPL Deposits due to customers Borrowings Debentures Other financial liabilities Other liabilities Total Net-asset Non-controlling interests Gain on disposal of disposal group held-for-sale Total amount of cash consideration Cash and cash equivalents of the subsidiaries disposed Net cash flow due to the disposal of the subsidiaries Book Value 560,034 21,838,589 1,588,066 3,032 14,244,435 127,606 774,759 39,136,521 12,767,119 2,011,292 13,346,342 4,031,716 3,169,551 182,109 35,508,129 3,628,392 1,987,786 113,012 1,753,618 (560,034) 1,193,584 48. DISPOSAL GROUP HELD FOR DISTRIBUTION TO OWNERS AND NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS (1) Summary In accordance with Public Funds Oversight Committee’s plan of the privatization of Woori Finance Holdings Co., Ltd. on June 26, 2013, the Board of Directors of the Woori Finance Holdings Co., Ltd. approved the plan of demerger of Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd. on August 27, 2013. The demerger was to take place through distributing of the shares of newly established holding companies, which were receiving the shares in Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd., to the shareholders of the Woori Finance Holdings. Therefore, the Group classified the related assets and liabilities of Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd. into disposal group held for distribution to owners presented the related gains or losses as net income (loss) from discontinued operations as at the end of 2013. On May 1, 2014, Kyongnam Bank and Kwangju Bank were demerged in accordance with the plan. - 90 - Woori Bank Annual Report 2014 197 (2) As of December 31, 2013, details of assets and liabilities classified as disposal group held for distribution to owners are as follows (Unit: Korean Won in millions) December 31, 2013 Disposal group held for distribution to owners Cash and cash equivalents Financial assets at FVTPL Available-for-sale financial assets Held-to-maturity financial assets Loans and receivables Investments in joint ventures and associates Investment properties Premises and equipment Intangible assets and goodwill Current tax assets Deferred tax assets Other assets Total Liabilities directly associated with disposal group held for distribution to owners Financial liabilities at FVTPL Deposits due to customers Borrowings Debentures Provisions Provision for retirement Deferred tax liabilities Derivative liabilities Other financial liabilities Other liabilities Total 691,608 654,965 3,257,957 4,124,083 41,057,781 28,286 48,566 299,828 32,828 573 40,540 75,278 50,312,293 31,962 36,603,292 4,860,597 2,515,965 233,831 88,854 617,764 15,920 1,859,151 55,078 46,882,414 The Group measured disposal group held for distribution to owners at the lower of the its carrying value and fair value less costs for distribution. In addition, the fair value of the disposal group held for distribution to owners was measured based on both of market approach and income approach. Fair value less cost to distribute of disposal group held for distribution to owners is amounting to 3,286,389 million Won and classified into level 3 due to the valuation technique(s) used when measuring the fair value and the inputs used in the valuation technique that were not observable in the market. The impairment loss on disposal group held for distribution to owners is recognized 40,658 million Won within the net income (loss) from the discontinued operations for the year ended December 31, 2013. A description of valuation techniques used for fair value measurement of disposal group held for distribution to owners and significant unobservable input variables are as follows. The Group considered both of market approach and income approach for the measurement of the fair value of Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd. which were classified to disposal group held for distribution to owners. Under the income approach, the discount cash flow method was applied and the present value of projected cash flows for next 5 years and further periods, which were prepared based on the assumptions incorporating the expected long-term growth rate for banking industry and inflation rates, was calculated by applying the discount rates which represented the appropriate costs of capital for Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd.. Meanwhile, under market approach, the market multiples that were reflecting the market values of companies similar to Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd. were considered (Comparable companies analysis). To measure the fair value of Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd. the both methods were used comprehensively. - 91 - Strength in Our ValueS 198 The key assumptions used under the income approach are given as follows: Projected period of cash flow (*1) Perpetual growth rate Discount rate (*2) Kwangju Bank 5 years 2.5% 12.1% Kyongnam Bank 5 years 2.5% 12.1% (*1) The cash flow projections for Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd. are based on various factors, such as historical financial information, market outlooks, long-term market growth rate, interest rates, and inflation rates, also incorporating management’s latest budget and future operating plans. (*2) The discount rates used to discount the cash flows is based on the cost of capital assigned to Kyongnam Bank Co., Ltd. and Kwangju Bank Co., Ltd. which are derived using a Capital Asset Pricing Model (“CAPM”). The CAPM depends on inputs, such as risk-free rate and market risk premium to reflect the inherent systematic risk of the business being evaluated. (3) Details of discontinued operations are as follows (Unit: Korean Won in millions): I. Operating income Net interest income Interest income Interest expense Net fees and commissions income Fees and commissions income Fees and commissions expense Dividend income Net gain on financial instruments at fair value through profit or loss Net loss on available-for-sale financial assets Impairment losses on credit loss Other net operating expenses II. Non-operating loss Share of profits of joint ventures and associates Other non-operating expenses III. Net income before income tax expense Income tax expense IV. Sub-total V. VI. Impairment of assets held for sale VII. Income tax benefit for Impairment VIII. Income from discontinued operations For the years ended December 31 2014 2013 108,896 348,396 683,075 (334,679) 53,182 77,030 (23,848) 13,595 22,119 (5,569) (81,459) (241,368) (1,342) - (1,342) 107,554 576,701 684,255 - - 684,255 320,297 1,085,595 2,154,318 (1,068,723) 150,739 225,422 (74,683) 37,064 93,595 (10,225) (281,205) (755,266) (13,961) 2,274 (16,235) 306,336 (638,736) (332,400) (40,658) 9,839 (363,219) (4) Details of cash flows in discontinued operations are as follows (Unit: Korean Won in millions): Cash flows from operating activities: Cash flows from investing activities: Cash flows from financing activities: For the years ended December 31 2014 2013 457,097 300,385 (754,823) 703,794 (160,948) (760,591) - 92 - Woori Bank Annual Report 2014 199 (5) During the year ended December 31, 2014, the spin-off of Kyongnam Bank and Kwangju Bank was completed, and the book values of net assets that were transferred due to the spin-off are as follows (Unit: Korean Won in millions): Assets: Cash and cash equivalents Financial assets at FVTPL Available-for-sale financial assets Held-to-maturity financial assets Loans and receivables Other assets Total Liabilities: Financial liabilities at FVTPL Deposits due to customers Borrowings Debentures Provisions Other liabilities Total Book value of Net assets Changes due to the Spin-off Controlling interests Non-controlling interests Book Value 792,949 835,053 3,140,294 3,968,947 41,459,234 583,663 50,780,140 34,645 38,152,435 4,628,746 2,078,716 183,096 2,350,516 47,428,154 3,351,986 3,065,422 286,564 49. PROMOTING PRIVATIZATION PLAN Pursuant to the privatization plan of Woori Finance Holdings Co., Ltd., which was decided at the Public Fund Oversight Committee (the “PFOC”) on June 26, 2013, the Group has disposed its subsidiaries. Kwangju Bank and Kyongnam Bank were demerged as of May 1, 2014, and from March 2014 to June 2014, Woori Investment & Securities, Woori Aviva Life Insurance, Woori Savings Bank, Woori Asset Management, Woori Financial and Woori F&I were disposed in due order. In respect of the final phase of the privatization which is with respect to the privatization of Woori Bank, PFOC announced the plan that comprised the merger between Woori Finance Holdings Co., Ltd and Woori Bank and the respective disposal of controlling interests (30% of ownership) and non-controlling interests (26.97% of ownership) of Woori Bank after listing of its shares on the stock exchange newly. Pursuant to the plan, the Bank merged with the Holding Company as of November 1, 2014, and completed its listing on Korean Stock Exchange on November 19, 2014. On November 28, 2014, KDIC commenced the auction procedure for the disposal of controlling interests and non-controlling interests of the Bank. There was successful bid only for the non-controlling interests, consequently KDIC’s ownership of the Bank decreased from 56.97% to 51.04%. It is expected that PFOC will be announcing the amended privatization plan for Woori Bank in future. - 93 - Strength in Our ValueS 200 50. AGREEMENT ON THE IMPLEMENTATION OF A MANAGEMENT PLAN (1) Since December 30, 2000, the Bank and the KDIC have entered into an agreement to implement management plans. Under the agreements, the Bank is obligated to improve its respective financial ratios, such as Bank of International Settlements (“BIS”) capital ratio, general and administrative ratio, non- performing loan rate and adjusted operating income per person. If the Bank fails to make improvements, the KDIC can enforce the Bank to increase or decrease its capital, pursue mergers, transfer of loans and deposits, or close or sell parts of its business operations. (2) In addition, on July 2, 2001, in order to establish efficient integrated structure of the Bank, the Bank and the KDIC have entered into an agreement to implement management plans, which incorporate establishment of corporate governance and business management system, improvement of short-term operational performance, strengthening the Bank’s competitiveness and pursuance of privatization plan, meeting the financial ratio objectives, and penalties in case the Bank not meeting such management plans. 51. BUSINESS COMBINATION The major business acquisitions have occurred during the year ended at December 31, 2014, are as follows: 1) Merger between Woori Finance Holdings and the Bank On November 1, 2014, the Bank (acquirer) merged with Woori Finance Holdings (acquiree) based on the resolution of the board of directors on July 28, 2014, and the Bank became the existing entity and Woori Finance Holdings was dissolved. The merger ratio was 1:1.0000000, and the shareholders of Woori Finance Holdings received one common share of the Bank per one common share of the company as compensation. Accordingly, the shares of the Bank, 597 million shares, prior to the merger, was reduced to nil in accordance with capital reduction procedure, and then, in accordance with the merger ratio, the Bank newly issued 676 million shares. Since the merger meets the definition of ‘business combination under common control’, the Bank recognized the transferred assets and liabilities of Woori Finance Holdings at the book values as previously recognized on the consolidated financial statements, and did not recognize any goodwill. Details of the merger are described as follows: Type Companies involved in merger New shares acquired due to merger Schedule Merger Woori Bank (existing entity) Woori Finance Holdings Co., Ltd. (non-existing entity) 676,278,371 shares of common stock Date of merger: Date of registration of merger: Date for distribution of stocks : Date for listing of stocks : November 1, 2014 November 3, 2014 November 18, 2014 November 19, 2014 2) Acquisition of Saudara Bank On December 30, 2014, Indonesia Woori Bank, which was a consolidated subsidiary of the Bank, merged with Saudara Bank in accordance with the resolution of the shareholders’ meeting on November 7, 2014, and the bank changed its name into Indonesia Woori Saudara Bank. i. Summary of the acquiree The Group acquired 33% ownership of Saudara Bank, which was a listed company in Indonesia, on January 28, 2014. Through the merger between Indonesia Woori Bank and Saudara Bank on December 30, 2014, the Group consolidated the bank and the ownership ratio after the merger became 74%. From the legal perspective, Saudara Bank was deemed as the existing entity; however, the transaction was accounted - 94 - Woori Bank Annual Report 2014 201 using the acquisition method under K-IFRS 1103 Business Combination as it was deemed that Indonesia Woori Bank was the acquirer from the accounting perspective. The Group promoted such transaction for the purpose of enhancing its retail operation in Indonesia. ii. Merger ratio Entity Merger ratio Acquirer Indonesia Woori Bank 1 Acquiree Saudara Bank 1,702,921.2 iii. Acquisition method (Unit: Korean Won in million) I. Consideration Fair value of the ownership interest held prior to the acquisition (*1) Fair value of additional consideration given (*2) Fair value of non-controlling interest of Woori Indonesia Bank Total amount of consideration II. Identifiable assets and liabilities Cash and Cash equivalents Available for sale financial assets Financial assets held to maturity Loan and receivables Property and equipment Intangible assets Other assets Sub-total Deposits Borrowings Debentures Deferred tax liabilities Other liabilities Sub-total Fair value of identifiable net asset III. Non-controlling interest of Saudara Bank IV.Goodwill(*3) Amount 65,667 38,551 52,609 156,827 81,100 22,074 15,473 639,222 23,882 25,719 34,238 841,708 714,989 12,082 29,425 3,757 12,872 773,125 68,583 17,816 106,060 (*1) Right before the business combination, the 33% ownership interest in Saudara Bank, which was held by the Bank and Indonesia Woori Bank, was remeasured at its fair value on December 30, 2014. The Group recognized loss on disposal of investment in associate, amounted to 1,237 million Won, as a result. (*2) The Bank acquired additional shares of Saudara Bank, 373,954,147 shares, due to the claims for stock repurchase from the shareholders of the bank who was opposing to the merger. (*3) Goodwill was recognized on the rationale that the competitiveness of the Group will be reinforced through the acquisition of local operation network in Indonesia. iv. Expenses from acquisition The Group recognized the expenses amounting to 1,446 million Won, such as legal fee, which occurred in conjunction with the business combination as fees and commissions expense on the consolidated statements of comprehensive income. - 95 - Strength in Our ValueS 202 Woori Bank annual Report 2014 Organization chart 10 Units 10 Divisions 56 Departments (as of Dec.8, 2014) cuStoMer SaleS center Branch ConsuMer BankIng BusIness unIt CorPorate BankIng BusIness unIt sMall & MeDIuM CorPorate BankIng BusIness unIt InstItutIon- al BankIng BusIness unIt real estate FInanCe BusIness unIt gloBal BusIness unIt WealtH ManageMent DIvIsIon InvestMent InvestMent BankIng BankIng DIvIsIon DIvIsIon FInanCIal Market BusIness DIvIsIon Int’l traDe BusIness DIvIsIon sMart BankIng BusIness DIvIsIon Consumer Banking Products & Marketing Dept. Wealth Management strategy Dept. Corporate Banking Products & Marketing Dept. Investment Banking Dept. small & Medium Corporate Banking Products & Marketing Dept. Institutional Banking Products & Marketing Dept. real estate Finance Dept. International Banking Dept. treasury Dept. Int’l trade Business Dept. smart Banking Business Dept. sales support Dept. Customer advisory Center Project Finance Dept. Public Fund sales Dept. Housing Fund Dept. trading Dept. Int’l trade service Center Fintech Business Dept. Channel Development Dept. smart Customer Center settlement support Dept. ICt support Center ManageMent Support unit Deputy preSiDent/Director strategy Business Dept. Investor relation Dept. secretary Dept. preSiDent & chief executive officer BoarD of DirectorS cuStoMer corporate Banking center stRength in ouR Values 203 FInanCe& ManageMent PlannIng unIt HuMan resourCes unIt rIsk Manage- Ment unIt CreDIt suPPort unIt PensIon & trust BusIness DIvIsIon MarketIng suPPort DIvIsIon CorPorate restruCtur- Ing DIvIsIon oPeratIon & suPPort DIvIsIon CustoMer InForMatIon seCurIty DIvIsIon trust Dept. synergy Promotion Dept. strategy & Control tower Dept. Human resources Dept. risk Management Dept. loan Policy Dept. Corporate restoration Dept. general affairs Dept. Customer Infor- mation security Dept. Public relations Dept. Consumer Protection Center retirement Pension Business Dept. Card Business Dept. Finance & Planning Dept. Human resources Development Dept. loan review Dept. Custody agent Dept. accounting Dept. employee satisfaction Center coMpliance officer Compliance Dept. BoarD auDit coMMittee Corporate restructuring Dept. loan service Center Deposit service Center security Control Dept. retail Credit analysis & approval Dept. sMe Credit analysis & approval Dept. large Corporate Credit analysis & approval Dept. Credit Management & Collection Dept. technology Finance Center StanDing auDit coMMittee MeMBer audit Dept. 204 Woori Bank annual Report 2014 Global network Head OFFice 51, sogong-ro (203, hoehyeon-dong 1-ga), Jung-gu, seoul, 100-792, Korea Phone: +82-2-2002-3000 swift: hVBKKRse OveRseas BRancH new York agency 245, Park ave. 43rd Floor, new york, ny 10167, usa Phone: 1-212-949-1900 Fax: 1-212-490-7146 swift: hVBKus33 · · · la Br. 3360, West olympic Blvd. suite 300, la, ca90019, usa Phone: 1-213-620-0747~8 Fax: 1-213-627-5438 swift: hVBKus6l · · · london Br. 9th Floor, 71 Fenchurch street, london, ec3M 4hD,uK Phone: 44-207-680-0680 Fax: 44-207-481-8044 swift: hVBKgB2l · · · Tokyo Br. Mitsui osK Building, 2-1-1 toranomon, Minato-ku tokyo 105-0001, Japan Phone: 81-3-3589-2351 Fax: 81-3-3589-2359 · · Hong Kong Br. suite 1401, two Pacific Place, 88 Queensway, hongkong Phone: 85-2-2521-8016 Fax: 85-2-2526-7458 · · singapore Br. 10 Marina Boulevard #13-05 MBFc tower 2, singapore 018983 singapore Phone: 65-6422-2000 Fax: 65-6422-2001 · · Bahrain Br. P.o. Box 1151, 4th Floor, entrance 1, Manama centre Building, Manama, Bahrain Phone: 973-17-223503 Fax: 973-17-224429 · · Hanoi Br. 24F, Keangnam landmark 72, e6 Pham hung Road, tu liem District. hanoi, Vietnam Phone: 84-4-3831-5281 Fax: 84-4-3831-5271 · · dhaka Br. suvastu imam square (1st & 4th Fl.) 65 gulshan avenue, Dhaka - 1212, Bangladesh Phone: 880-2-881-3270~3 Fax: 880-2-881-3274/3241 · · • DEPZ Customer Service Center Dhaka export Processing Zone(old area), ganakbari, ssvar, Dhaka-1349, Bangladesh Phone: 880-2778-8030 Fax: 880-2881-3274/3241 · · • Woori Bank Chittangong Sub-Branch World trade center chittagon(2nd Floor) Plopt no. 102-103, agrabad commercial area, chittagong, Bangladesh Phone: 880-931-728221~4 Fax: 880-931-728225 · · • Woori Bank Mirpur Sub-Branch Padma Bhaban(First Floor), 1/9 Mirpur Road Pallabi, Mirpur-12, Dhaka-1216, Bangladesh Phone: 880-2902-1061~2 Fax: 880-2902-1064 · · • Woori Bank, Narayanganj Sub-Branch adamjee export Processing zone, shiddhirganj, narayanganj-1431 Bangladesh Phone: 880-2769-2031~34 Fax: 880-2769-2035 · · Gaeseong Br. gaesong industrial District Phase 1, 25 - 1 Business support center, 1st Floor 103 1st Floor, Bongdong-Ri, gaeseong, hwanghae-Do, north Korea Phone: 001-8585-2300~2 Fax: 001-8585-2303 · · Hochiminh city Br. 2 Floor, Kumho asiana Plaza saigon, 39 le Duan st., Dist 1, hcMc, Vietnam Phone: 84-8-3821-9839 Fax: 84-8-3821-9838 · · chennai Br. 6th Floor, ea chambers, no. 49, 50l, Whites Road, Royapettah, chennai 600 014, india Phone: 91-44-3346-6900 Fax: 91-44-3346-6995 · · sydney Br. suite 25.03, level 25, 363 george street sydney nsW 2000 australia Phone: 61-2-8222-2200 Fax: 61-2-8222-2299 · · woori Bank dubai Br. 1102a, level 11, the gate Building, east Wing, P.o. Box 506760, DiFc, Dubai, united arab emirates Phone: 971- 4-325-8365 Fax: 971-4-325-8366 swift: hVBKaeaDXXX · · · suBsidiaRY u.s.a woori america Bank 1250 Broadway newyork, ny 10001, usa Phone: 1-212-244-3000 Fax: 1-212-736-5929 · · woori america Bank, Broadway Br. 1250 Broadway newyork, ny 10001, usa Phone: 1-212-244-1500 Fax: 1-212-736-5929 · · woori america Bank, Flushing Br. 136-88 39th avenue Flushing new york, ny 11354, usa Phone: 1-718-886-1988 Fax: 1-718-762-6898 · · woori america Bank, Fort lee Br. 2053 lemoine avenue Fort lee, nJ 07024, usa Phone: 1-201-363-9300 Fax: 1-201-302-0452 · · woori america Bank, woodside Br. 43-22 50th st. Woodside, ny 11377, usa Phone: 1-718-429-1900 Fax: 1-718-429-2084 · · woori america Bank, Ridgefield Br. 321 Broad avenue #104 Ridgefield, nJ 07657, usa • Woori Bank Uttara Sub-Branch Paradise tower(ground Floor) Plot 11, sector 3, uttara Model town,uttara, Dhaka 1230, Bangladesh Phone: 1-201-941-9999 Fax: 1-201-941-4419 · · Phone: 880-2896-2125~6 Fax: 880-2896-2129 · · woori america Bank, Palisades Park Br. 225 Broad avenue Palisades Park, nJ 07650, usa Phone: 1-201-346-0055 Fax: 1-201-346-0075 · · woori america Bank, closter Br. 234 closter Dock Road closter, nJ 07624, usa Phone: 1-201-784-7012 Fax: 1-201-784-7013 · · woori america Bank, elkins Park Br. 7300 old york Rd elkins Park, Pa 19027 Phone: 1-215-782-1100 Fax: 1-215-782-1500 · · woori america Bank, annandale Br. seoul Plaza 4231 Markeham st, suite F annandale, Va 22003, usa Phone: 1-703-256-7633 Fax: 1-703-256-7511 · · woori america Bank, Bayside Br. 215-10 northern Blvd. Bayside, ny 11361, usa Phone: 1-718-224-3800 Fax: 1-718-224-3828 · · woori america Bank, wheaton Br. 11925 georgia ave. Wheaton, MD 20902 (Wheaton Park shopping center), usa Phone: 1-301-933-1175 Fax: 1-301-933-1560 · · woori america Bank, wilshire Br. 3540 Wilshire Blvd. unit 104, los angeles, ca 90010, usa Phone: 1-213-382-8700 Fax: 1-213-382-8787 · · woori america Bank, Olympic Br. 3360, West olympic Blvd. suite #300, la, ca 90019, usa Phone: 1-213-738-1100 Fax: 1-213-738-1101 · · woori america Bank, Fullerton Br. 5731 Beach Blvd., Buena Park, ca 90621, usa Phone: 1-714-521-3100 Fax: 1-714-521-3101 · · woori america Bank, Garden Grove Br. 10120 garden grove Blvd.,suite 151garden grove, ca 92844, usa Phone: 1-714-534-6300 Fax: 1-714-534-6301 · · woori america Bank, centreville Br. 13830 a-12 Braddock Road. centreville, Va 20121, usa Phone: 1-703-988-9555 Fax: 1-703-988-9554 · · woori america Bank, irvine Br. 14252 culver Dr. #g, irvine, ca 92604 Phone: 1-949-885-3760 Fax: 1-949-653-0943 · · cHina woori Bank (china) ltd. 26F, tower a, tianyuangang centre,c2, north Road, east third Ring Road, chaoyang District, Beijing,100027, china Phone: 86-10-8412-3000 Fax: 86-10-8440-0698 · · woori Bank (china) ltd. Head office business department 1F~2F, tower a, tianyuangang centre,c2, north Road, east third Ring Road, chaoyang District, Beijing,100027, china Phone: 86-10-8441-7771 Fax: 86-10-8446-4631 · · woori Bank (china) ltd. Beijing Br. 1F, West tower, twin towers, B-12 Jianguomenwai avenue, chaoyang District, Beijing, 100022, china Phone: 86-10-8453-8880 Fax: 86-10-8453-8881 · · woori Bank (china) ltd. shanghai Br. Drum Building 1-2F, lJZ -Plaza,1600 century avenue, Pudong new area, shanghai, 200122, china woori Bank (china) ltd. weihai Br. no.106-1~3, attached Qingdao Mid-Road, Weihai, shandong Province, china, 264200 Phone: 86-21-5081-0707 Fax: 86-21-5081-2484 · · Phone: 86-31-599-6000 Fax: 86-31-597-0030 · · woori Bank (china) ltd. shenzhen Br. B0105, B0210 Rongchao landmark, 4028 Jintian Road, Futian District, shenzhen, 518035 china woori Bank (china)ltd.Tianjin dongmalu sub-Br 1-2F, tower c, yuding Plaza(Qixiang street), Dongma Road, nankai District, tianjin, 300090, china Phone: 86-755-3338-1234 Fax: 86-755-3338-7227 · · Phone: 86-22-8776-9000 Fax: 86-22-8776-9901~2 · · woori Bank (china) ltd. suzhou Br. 101B, sovereign Building, #8 suhua Road suzhou industrial Park, Jiangsu, 215021 china wooriBank(china)ltd. chongqing Br. unitl, Floor l2-1, Ping an Fortune center, no. 25-2, West Main street, Jiangbei District, chongqing 400023, china Phone: 86-512-6295-0777 Fax: 86-512-6295-2141 · · woori Bank (china) ltd. TianJin Br. no. 1 Building, aocheng commercial square, Binshui West Road, nankai District, tianjin, 300381, china Phone: 86-22-2338-8008 Fax: 86-22-2392-5905 · · woori Bank (china) ltd. shanghai Puxi sub-Br. s115-s119, 1F Maxdo center no.8 Xingyi Rd. changning District shanghai, 200336, china Phone: 86-21-5208-1000 Fax: 86-21-6235-1036 · · woori Bank (china) ltd. Beijing wangjing sub-Br. 1F, no 10, Furong street, chaoyang District, Beijing, 100102, china Phone: 86-10-8471-8866 Fax: 86-10-8471-5245 · · woori Bank (china) ltd. shanghai wuzhonglu sub-Br. 1c, liaoshen Building, 1068 Wuzhong Rd Minhang District, shanghai, 201103 china Phone: 86-21-6446-7887 Fax: 86-21-6446-1200 · · woori Bank (china) ltd. shenzhen Futian sub-Br. Room 107, 201, Daqing Building, no. 6027, shen nan Road, Futian District, shenzhen, 518040 china Phone: 86-755-8826-9000 Fax: 86-755-8826-9038 · · woori Bank (china) ltd. shanghai Jinxiujiangnan sub-Br. 1F, 188 south Jinhui Road, Minhang District, shanghai, 200237, china Phone: 86-21-3432-1116 Fax: 86-21-3432-1112 · · woori Bank (china) ltd. Beijing shunyi sub-Br. 1F,tower a, aMB Building, 2, cangshang st, shunyi District, Beijing 101300, china Phone: 86-10-8945-2220 Fax: 86-10-8949-3560 · · woori Bank (china) ltd. dalian Br. 2F-218 yoMa iFc, no.128 Jinma Road, Dalian Development area, Dalian, 116600, china Phone: 86-411-8765-8000 Fax: 86-411-8765-8515 · · woori Bank (china) ltd. Zhangjiagang sub-Br. B104/B205 huachang oriental Plaza, 11 Renmin east Road, Zhangjiagang, Jiangsu 215600, china Phone: 86-512-5636-6696 Fax: 86-512-5636-6697 · · woori Bank (china) ltd. chengdu Br. 1F-3F, Ping'an Fortune center, no.1 Renmin south Road, chengdu, sichuan, 610044 china Phone: 86-28-6557-2366 Fax: 86-28-6357-2369 swift: hVBKcnBJ · · · Phone: 86-23-6152-2222 Fax: 86-23-6152-2220 · · indOnesia PT Bank woori saudara indonesia 1906 Tbk Jl. Diponegoro no 28, Bandung 40115, indonesia Phone: 86-22-8783-1906 · Jakarta coporate Business center 16th Fl., Jakarta stock exchange Bldg.,Jl.Jend sudirman Kav.52-53, Jakarta 12190, indonesia Phone: 62-21-515-1919 Fax: 62-21-515-1477 swift: hVBKiDJa · · · Tangerang sub-Branch Office Ruko Pinangsia Blok h no.1 lippo Karawaci-tangerang 15139 indonesia Phone: 62-21-5577-2345 Fax: 62-21-5577-6363 swift:hVBKiDJa · · · cikarang sub-Branch Office cikarang commercial center Block a1 ~ a2, Jl cibarusah KM.40 no.2, Desa Pasir sari Kec. cikarang selatan 17550, indonesia Phone: 62-21-8983-5270 Fax: 62-21-8983-5271 swift:hVBKiDJa · · · cibubur sub-Branch Office cibubr time square Blok B1/1 Jl alternatif cibubur Km.3 Kelurahan Jatikarya, Bekasi, indonesia Phone: 62-21-8430-5050 Fax: 62-21-8430-5353 swift:hVBKiDJa · · · Krakatau Posco sub-Branch Office Jl. afrika no.2 Krakatau industrial Krakatau steel, chilegon, Banten 42435, indonesia Phone: 62-25-436-9755 Fax: 62-25-436-9759 swift:hVBKiDJa · · · PT Bank woori indonesia Bekasi sub Branch Jl. niaga raya, Block P no.22c, Kompleks Perumahan Kemang Pratama, Bakasi, Jawa Barat, indonesia Phone: 62-21-8240-4282 Fax: 62-21-8240-2284 swift:hVBKiDJa · · · PT Bank woori indonesia Ruko union sub Branch Ruko union Block a no.6, lippo cikarang Rt02/R+09 cikarang selatan Kab Bekasi, indonesia Phone: 62-21-8990-9797 Fax: 62-21-8990-3007 · · PT Bank woori indonesia sadagnd sub Branch sadang terminal sauare, lantai. Desar no.07,08,25, Jl. Raya sadang - Purwakarta, Kel. ciwangi Kec. Bungursari, Kab, Purwakarta Jawa Barat 41181 Kecamatan Bungursari, Kabupaten Purwakarta, Jawa Barat,41181 Phone: 62-26-4822-0180 Fax: 62-26-4822-0181 swift: hVBKiDJa · · · stRength in ouR Values 205 HOnG KOnG woori Global Market asia limited Rooms 1905-1908, 19/F, gloucester tower, the landmark, 15 Queen's Road central, hong Kong Phone: 852-3763-0888 Fax: 852-3763-0808 · · Russia Zao woori Bank 8th floor, lotte Plaza, 8, novinsky Boulevard, Moscow, 121099, Russia Phone: 7-495-783-9787 Fax: 7-495-783-9788 · · • Zao Woori Bank Saint-Petersburg Br. 1st Floor, atlantic city, 126 savushkina street, saint- Petersburg, 197374, Russia Phone: 7-812-327-9787 Fax: 7-812-327-9789 · · • Zao Woori Bank vladivostok Representative Office Vladivostok Business-center office no. 614, 29, semenovskaya str. Vladivostok, 690091, Russia Phone: 7-423-240-7014 Fax: 7-423-240-7015 · · BRaZil(BRasil) woori Bank Brasil avenida nacoes unidas, 14,171, crystal tower, conj.803, Vila gertrudes, 04794-000, sao Paulo-sP,Brasil Phone: 55-11-2309-4740 Fax: 55-11-3511-3300 · · caMBOdia woori Finance cambodia Plc. Building no. 119B, street271, sangkat Phsar Doem thkov Khan chamkarmon, Phnom Penh. Phone: 855-23-999-661 Fax: 855-23-999-663 · · • Russey Keo Branch house no 1a, national Road 5, sangkat Kilomet lek6 Khan Russey Keo, Phnom Penh. Phone: 855-23-999-664 · • Pursenchey Branch house no 6a, Russian Blvd, tangoun Village, sangkat Kakb, Khan Pursenchey, Phnom Penh. Phone: 855-23-999-803 · • Kean svay Branch house no. 330, national Road 1, toul tuaut village, Korkey communce, kean svay district, Kandal province Phone: 855-23-720-632 · • Takhmao Branch Building no. 31, street2, takhmao village, takhmao commune, takhmao District, Kandal Province, cambodia Phone: 855-24-998-333 · OveRseas OFFice MalaYsia woori Bank Kuala lumpur Representative Office unit 4129/4130, 41/F, Vista tower, the intermark 182 Jalan tun Razak, Kuala lumpur 50400, Malaysia Phone: 60-3-2163-8288 Fax: 60-3-2163-9288 · · uae woori Bank Yangon, Myanmar Office no. 0307, 3rd Floor, sakura tower, 339 Bogyoke aung sand Road, Kyauktada township, yangon Myanmar Phone: 95-94-2530-9391 · StANDiNG StroNG toGEtHEr CoNtACt iNForMAtioN Directed by Eun Kyung(Christine) KIM, Manager(IR Team) Investor Relations Team, Financial Planning Dept. Tel: 82-2-2002-3186 ekk@wooribank.com Created by Lucre Inc. Kim, Hyun Soo Art Director, tel: 82-2-542-6725, www.lucrebeyond.com Photo by ROUND TABLE Han, Ze Hun Photographer, tel: 82-2-3288-6005, www.roundtableic.com W o o r i B a n k 2 0 1 4 a n n u a l r e p o r t S t r e n g t h i n o u r v a l u e S 51, Sogong-ro (203, Hoehyeon-dong 1-ga), Jung-gu, Seoul, 100-792, Korea Tel. +82-2-2002-3000 www.wooribank.com 

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