[Click eStock] "Woori Financial, Overcoming the Shock Related to DLF in Q2"

[Asia Economy Reporter Park Jihwan] Hana Financial Investment on the 6th forecasted that aside from the concerns sweeping across industries due to the novel coronavirus infection (COVID-19), the negative factors unique to Woori Financial Group, such as institutional sanctions related to derivative-linked funds (DLF), will soon be resolved. Accordingly, they maintained a 'Buy' investment rating and a target price of 11,000 KRW.

Choi Jungwook, a researcher at Hana Financial Investment, said, "The estimated net profit for the first quarter of this year is expected to be 458 billion KRW, a 19.5% decrease compared to the same period last year," adding, "The loan growth rate is expected to be over 1.5% due to the expansion of loans to large corporations, and the decline in the net interest margin (NIM) in the first quarter is expected to be the smallest among banks."

Woori Financial Group's stock price has been weak due to concerns not only from the industry-wide impact triggered by COVID-19 but also from institutional sanctions related to DLF, compensation for incomplete sales, and the filing of administrative lawsuits against severe disciplinary actions on executives, raising concerns about delays in the approval of the internal rating system due to anticipated friction with supervisory authorities.

Although an additional loss of approximately 40 to 50 billion KRW is expected to be recognized due to the upfront cost processing of DLF maturities in the first quarter and those scheduled for the second quarter, a non-monetary foreign exchange gain of about 30 billion KRW is expected from the rise in the KRW-USD exchange rate, partially offsetting the losses.

Researcher Choi Jungwook emphasized, "Considering the supervisory authorities' atmosphere of early implementation of only some parts favorable to capital ratio increases in the Basel III final rule to strengthen banks' loan support capabilities for small and medium-sized enterprises, the internal rating system issue is expected to be resolved soon," adding, "Losses related to DLF are also expected to be completely settled starting from the first quarter."