Woori Rebounds on Cost Reduction Drive
Net Profit Soars 207% to W483 Bil. in Third Quarter
By Kim Jae-kyoung
Woori Financial Group, the nation's second largest financial holding company, has gained the spotlight here, after beating market expectations with a much stronger-than-expected performance in the third quarter of the year.
Woori's results were outstanding as they came after the group was hit hardest by the global financial turmoil due to huge losses from investments in risky assets abroad.
The financial group more than tripled its earnings in the third quarter of 2009, with a net profit of 483.8 billion won between July and September, up 207.2 percent from a year ago, bringing the figure for the year to September to 869.2 billion won. This was the largest quarterly net income among local financial groups.
The strong performance was mainly due to improvements both in profitability and asset soundness. Its net interest margin (NIM), a barometer for profitability, rose to 1.94 percent in September from 1.75 percent in the previous quarter, increasing interest income by 7.5 percent..
The group's overdue loan rate, which peaked in the first quarter, decreased by 3 basis points to 0.97 percent in September, while its loan-to-deposit ratio dropped to 100.9 percent and Bank for International Settlements (BIS) ratio improved to 12.1 percent.
Woori Bank, the flagship of the financial holding company, posted a net profit of 411 billion won in the third quarter, up 140 percent from the previous quarter, with an operating income of 1.15 trillion won. The bank's cumulative net profit reached 749.8 billion won for the first nine months of the year.
Other subsidiaries also showed handsome performances in the third quarter. Kyongnam and Kwangju banks, Woori Investment Securities and Woori Financial, registered net profits of 156.5 billion won, 48.2 billion won, 170.5 billion won and 16 billion won, respectively.
``Key data, including the NIM and overdue loan rate, have shown clear signs of improvement in the third quarter, and the trend is expected to continue going forward,'' a group executive said.
``We will continue to make efforts to sustain robust growth by improving profitability and reducing problem assets,'' he added.
Cost Reduction Efforts
Woori's effort to reduce costs is a key factor for the strong performance. Since the beginning of the year, Woori Financial CEO Lee Pal-seung has placed top priority on strengthening internal capabilities, and carried out self-rescue efforts to tide over the economic turmoil.
In October 2008, executive and employees of the group and its subsidiaries agreed to reduce their paychecks by 10 percent, while the group consolidated overlapping branches. This February, management returned an additional 10 percent of their salaries.
In September, the group launched the Enterprise Risk Management (ERM) consulting project to strengthen its risk management system, making it more centralized.
Through the project, the group has sought to transform risk management into a more-centralized system by giving greater authority to its chief risk officer and the division in charge of risk management. The group also launched a ``strategic cost reduction taskforce'' in a bid to establish a low-cost, high-efficiency organization.
The third quarter upside surprise has given a boost to its stock price. Given that this reflect a company's fundamentals, the outlook for the group seems bright. The stock price of the group has continued on an upward trend since the beginning of this month.
In particular, price is outperforming the key KOSPI, as well as those of major financial players. Share prices closed at 16,500 won Monday, up more than 150 percent from the end of last year.
On top of a faster-than-expected recovery, leadership in management has played a key role in the group's business turnaround in the third quarter.
In his first press conference May last year, CEO Lee unveiled his ambitious vision to transform Woori Financial into one of the world's top 30 financial groups ― with total assets of 600 trillion won ― speeding up privatization and boosting its non-banking sector.
However, in the face of the severe economic downturn triggered by the global crisis, he put aside his vision and placed top priority on fixing the balance sheet by disposing of bad assets, the legacy of two former Woori Bank CEOs ― Hwang Young-key and Park Hae-choon ― who headed the lender from 2004 to 2007 and 2007 to 2008 respectively.
Instead of carrying forward such losses to make the balance sheet look better, he opted to focus on clearing them as soon as possible to better cope with the economic crisis and ensure a fast turnaround this year.
Since the beginning of 2009, Woori has focused on improving its financial health, while avoiding reckless business expansion. His decision, based on his experience in the banking industry, is now paying off, beating the group's rivals here in its business performance.
Lee also gets high marks for making progress in strengthening the unity between group subsidiaries and creating synergy by promoting cross-selling among them.
Although the worst may be behind Woori Financial, Lee is still facing a bumpy road ahead as there are a couple of key issues to tackle in the coming year. The biggest task for him is to privatize the financial group through successful mergers and acquisitions (M&A) and reinvent it as a global player.
This could be a great opportunity for him to show his leadership and management capability. He has a proven track record of turning a challenge into an opportunity. While he was at the helm of Woori Investment & Securities, the brokerage house enjoyed surpluses for five consecutive years, climbing to become one of the top 10 companies in the securities industry.
His leadership as a CEO shone further after he transformed the Seoul Philharmonic Orchestra, once regarded as a poorly-managed group, into a model of management reform. His textbook-style risk management and experience in the financial industry are expected to help the group overcome upcoming challenges and emerge as a winner in the post-crisis world.