Surviving Entity: Woori Bank (the “Bank”)

(1)    The banking industry is a core industry and a major regulated industry in Korea. Its profitability is greatly influenced by factors in the legal and policy environment, such as changes in the regulatory environment of the government or financial supervisory authorities. Regulations of the government and financial supervisory authorities may adversely impact the profitability of banks due to factors such as the implementation of Basel III and its regulation of liquidity ratios, the need to structure assets and funding to comply with restrictions on the loan to deposit ratio, potential limited growth in household loans in the banking sector caused by comprehensive measures for the soft landing of household debt and the increased supply of low interest mortgages, and the risk of poor profit margins from competition in mixed interest rate (fixed interest rate + variable interest rate) mortgage loans that are aimed at achieving the target portfolio share of fixed interest rate mortgage loans. Therefore, investors should carefully consider the regulations of the government and financial supervisory authorities.

(2)    After 2009, a number of factors including the adoption of conservative asset management strategies by customers and regulation of the loan to deposit ratio by the financial supervisory authorities led to changes in the share of deposits and marketable funds that constitute the funding sources of domestic commercial banks. The share of deposits increased from 47.37% to 63.68%, and the share of marketable funds decreased from 30.05% to 15.91%, from the end of 2009 to the first quarter of 2014. Dissatisfaction with the low interest rates of time deposits due to the continuing low interest rate environment and the lack of alternative investment opportunities have resulted in the concentration of funds into short term financial products, leading to “short term concentration.” If the preference for risky assets increases due to the future recovery of the equity and real estate markets, the exit rate from such concentrated short term funds may increase. In such case, it would be necessary to increase mid to long term capital procurement to address higher liquidity risks. Investors should be fully aware of the changing funding strategies of banks based on such changes in the economy, as well as the resulting risk in the fluctuation of funding costs.

(3)    The rate of increase of corporate and household loans has declined due to the recession in the real estate market which is a factor in the instability of the profitability and fund management plans of banks. Credit risk relating to the housing construction industry and the risk of decrease in the collateral value of mortgages are potential risks that threaten the asset quality of banks. Accordingly investors should be aware of changes in loan volume caused by the market conditions of the construction and real estate industries as well as asset quality depending on such loans.

(4)    The net interest margin (“NIM”) of commercial banks improved slightly after the global financial crisis of 2008 from 2.15% in 2009 to 2.42% in 2011. However, influenced by the decrease in the base rate and other factors, the NIM decreased again to as low as 1.86% in the first quarter of 2014. The momentum for profit growth through the interest rate spread between deposits and loans is expected to slow and banks must search for new methods to generate profits through diversification of their business in an environment where low growth and low interest rate trends persist. If such business diversification efforts are not successful, banks may find it difficult to improve their profitability.

(5)     The banking industry is sensitive to macroeconomic trends such as private consumption and corporate business trends and is susceptible to changes in the domestic and foreign economies. The current business environment for domestic banks is not favorable due to weakened demand for funds and continuation of low interest rates. Delay in improvement of economic conditions overseas and deterioration of domestic macroeconomic conditions have generally led to weakened growth and asset quality. Since the second half of last year, the real economy of major countries such as the U.S. and China showed some signs of improvement and there are indications that the strong preference for low risk assets in the financial markets may weaken. As market interest rates may change according to domestic and foreign economic conditions the profitability of banks may decrease unless such changes are appropriately managed.

(6)     Due to structural issues in the domestic banking industry, competition among banks and with other financial industries may increase. Investors should note the possibility of industry wide changes and increased competition for expansion in size through privatization and M&A.

Non-surviving Entity: Woori Finance Holdings Co., Ltd. (the “Company”)

(1)     After consummation of the Merger, the Company, the non-surviving entity, will cease to exist and will no longer operate as a financial holding company within the meaning of the Financial Holding Companies Act. As such, this Securities Registration Statement does not discuss risks specifically relating to the business of the Company. Following the consummation of the Merger, however, the dissolution of the financial holding company which existed for the management of its subsidiaries, may adversely affect managerial efficiency and expertise with respect to the subsidiaries.

(2)     The results of operations of a financial holding company are directly impacted by the results of operations of its subsidiaries. As such it is essential that investors understand the businesses of the Company’s subsidiaries in order to understand the competitive landscape and results of operations of the Company itself. Today’s financial industry is driven by intense competition and pressure for restructuring to achieve economies of scale and any deterioration in competitiveness at the subsidiary level may adversely affect the competitiveness and results of operations of the holding company. Accordingly investors are encouraged to consider the business of each subsidiary of the Company that will become a consolidated subsidiary of the Bank upon consummation of the Merger.

(3)     Domestic credit card issuers recorded a total net income of KRW 1.7 trillion in 2013, an increase of KRW 0.4 trillion, or 30.02%, compared to 2012, due primarily to a decrease in bad debt expenses in respect of credit card balances and decrease in funding costs as a result of low interest rates. It is expected, however, that the profitability of credit card issuers will be adversely affected by increased usage of debit cards, regulatory pressures to lower merchant fees and increases in bad debt expenses. In particular, profitability will likely decrease throughout 2014 due to incidents of security breaches that caused inappropriate disclosure of sensitive customer information as well as the business suspension of certain credit card issuers. Investors should be aware of such risks.

(4)     Over the past several years, credit card assets have increased by KRW 30.7 trillion, or 87.01%, from KRW 35.3 trillion as of December 31, 2010 to KRW 66.0 trillion as of March 31, 2014, due primarily to a continued increase in card loans. To increase sources of income, credit card issuers have actively engaged in extending card loans, thereby taking increased credit risks. Since the end of 2010, domestic credit card issuers have maintained delinquency ratios as set by the Financial Supervisory Service (the “FSS”) (i.e., overdue by one month or more) within the range of 1.5~1.7% and NPL Ratios within the range of 1.2~1.4%, according to the FSS. However, an interest rate hike in the future may adversely affect the asset quality of credit card issuers that have extended a large amount of credit to debt ridden households and high risk borrowers. In addition, an economic slowdown in the future may cause an increase in delinquency ratios and bad debt expenses, resulting in further deterioration in the asset quality of credit card issuers. Investors should be aware of such issues.

(5)    The merchant banking business has been slow since the 1997 foreign exchange crisis, and operating results have not recovered since. The current administration’s policy seems to favor the integration of merchant banking into the securities business instead of actively supporting merchant banking as a standalone business, and therefore, significant increase in merchant banking activities seems unlikely. Investors should be aware of such issues.

(6)    Merchant banks have experienced decreases in deposits and loans due to intense competition with other financial institutions such as commercial banks and securities firms. For example, deposits relating to bills issued decreased by KRW 206 billion, from KRW 603 billion to KRW 397 billion as of March 31, 2013 and 2014, respectively. During the same period, deposits relating to cash management accounts also decreased by KRW 7 billion to KRW 338 billion. Similarly, bills discounted decreased from KRW 409 billion to KRW 65 billion between March 31, 2010 and March 31, 2014. As the only financial institution in Korea that is exclusively engaged in merchant banking, Woori Investment Bank has experienced deterioration in its business environment as its accumulated deficit since 2010 has resulted in an impairment of capital, which has in turn reduced its shareholders’ equity and restricted its operating boundaries. In order to overcome such difficulties, Woori Investment Bank increased its capital by KRW 69.8 billion through the issuance of new shares in June 2014 and is seeking to generate income from new businesses such as investing in non-performing loans and lease financing.

(7)    Advances in information technology have led to an emphasis on data privacy. Amid growing concerns for the protection of personal data, several recent incidents of security breaches at certain financial institutions that caused inappropriate exposure of sensitive customer information have prompted financial institutions to strengthen data security measures based on internal control procedures. The Company and its subsidiaries, including the Bank, have stepped up their internal control processes with respect to access to customer records as well as security measures for data protection, all in an effort to protect customer data. In the event personal data is compromised, however, the Company and its subsidiaries may be exposed to class action suits that may result in significant liability, increased operational expenses and/or reputational risk, as well as regulatory action or other sanctions, all of which may have a material adverse effect on their businesses, results of operations and financial condition.

(4)    The Bank complies with the capital adequacy standards set forth by the financial supervisory authorities (minimum 4.5% Tier 1 common equity ratio, 6% Tier 1 capital ratio and 8% total capital ratio). The Bank has increased capital surplus and preemptively issued subordinated bonds and hybrid bonds in response to such standards despite the global financial crisis and economic recession, and the Bank’s capital adequacy has improved with the BIS capital adequacy ratio and Tier 1 capital ratio increasing to 15.5% and 12.7% respectively as of the end of 2013 when Basel III was implemented, compared to 14.7% and 11.4% respectively as of the end of 2012. In addition, as of the end of March 2014, the Bank’s BIS capital adequacy ratio of 15.4% and Tier 1 capital ratio of 12.8% were consistent with the averages for commercial banks (BIS capital adequacy ratio of 15.2% and Tier 1 capital ratio of 12.8%). However, investors should be aware that the Bank’s capital adequacy may decline in the future due to its lower asset quality relative to other banks.

(5)    The KDIC is proceeding with the privatization of the Company and its subsidiaries to facilitate the Korean government’s objective of privatizing government invested financial institutions. The Financial Services Commission (the “FSC”) announced the Privatization Plan on June 26, 2013 through a press release, and the sales of the regional banking subsidiaries and Woori Investment & Securities and other subsidiaries is complete. Currently, the Merger between the Bank and the Company is being conducted in accordance with the Privatization Plan for the Bank announced on June 23, 2014. Please be aware that the Bank’s corporate governance structure may change pursuant to the outcome of the sale of the Bank.

(6)    As of the date of submission of this Securities Registration Statement, other than proceedings to extend the statute of limitations relating to loans (479 claims with an aggregate claimed amount of KRW 68.9 billion), there are 314 lawsuits outstanding (aggregate claimed amount: KRW 564.3 billion) of which the Bank is the plaintiff in 66 (aggregate claimed amount: KRW 262.7 billion) and the Bank is the defendant in 248 (aggregate claimed amount: KRW 301.6 billion). The Bank has established relevant provisions of approximately KRW 18.4 billion by estimating the probability of win/loss of each case as well as reasonable costs related thereto. The outcome of the currently pending legal proceedings cannot be predicted and may adversely impact the Bank’s business performance and financial statements. Investors should be aware of this issue.

(7)    Major consolidated subsidiaries of the Bank, other than money trusts and structured entities, include banks in the U.S., Indonesia, Hong Kong, China, Russia, Brazil, etc., Korea BTL Infrastructure Fund, Woori Credit Information Co., Ltd. (“Woori Credit Information”), etc. Currently, the consolidated subsidiaries account for 4.5% of the Bank’s consolidated assets, and foreign banks, Korea BTL Infrastructure Fund and Woori Credit Information account for 2.7%. The impact of major consolidated subsidiaries on the Bank’s consolidated financial condition and profits will increase if the proportion of the assets of major consolidated subsidiaries increases with their increased business activity. Consequently, investors should continuously monitor each consolidated subsidiary’s business activities.

Non-surviving Entity: Woori Finance Holdings Co., Ltd.

(1)    The failure of a holding company to effectively manage the businesses of its subsidiaries in an integrated manner and create synergies may have an adverse effect on the business operations and competitiveness of its subsidiaries which may in turn cause deterioration in the overall business environment of such holding company.

(2)    Because credit card issuers do not take deposits, their funding structure is relatively unstable compared to that of commercial banks, insurance companies or other financial institutions that maintain deposit accounts. Although Woori Card has managed to finance its operations based on the credit rating of and potential support from the Group, privatization of the Bank and resulting changes in the governance structure of the Group may result in a downgrade in Woori Card’s credit rating and a deterioration in its liquidity position. Investors should note such issues.

(3)    Following its spin-off from the Bank in 2013, Woori Card has maintained the level of profitability it had prior to the spin off and has increased its market share from 6.8% in 2012 to 7.5% in 2013 and 8.2% as of June 30, 2014. Depending on the outcome of the privatization of the Bank, however, the business and results of operations of Woori Card may be adversely affected. Investors should be aware of such issues.

(4)    Woori Investment Bank’s independent auditors have expressed doubts about the company’s ability to continue as a going concern. To address such concerns and to normalize its business operations Woori Investment Bank issued additional stock of KRW 69.8 billion in June 2014 with a view to increase its capital as well as its operating limits. Continuation of the incurrence of net loss and deterioration of its financial condition, however, may raise greater doubts about the company’s ability to continue as a going concern. In addition Woori Investment Bank recorded a capital impairment ratio of 42.70% on a consolidated basis as of June 30, 2014 and accordingly was not subject to designation as an issuer subject to monitoring under the KRX KOSPI Market Listing Regulations. In the event its business performance does not improve, however, its capital impairment ratio may increase to 50% or above, in which case the company may be designated as an issuer subject to monitoring. Investors should note such issues.

(5)    Woori Investment Bank recorded a net decrease in cash flows between April 1, 2012 and March 31, 2014. The company recorded a decrease in cash provided by operating activities and a continued inflow of cash provided by investing activities. Despite the KRW 140 billion increase in capital as a result of the issuance of additional stock in June 2013, the company recorded a net decrease in cash flows of KRW 23,515 million as of March 31, 2014 due primarily to cash used in operating activities of KRW 138,199 million. On a net basis, the company recorded cash inflow of KRW 4,864 million as of June 30, 2014, but without the effect of the KRW 69.8 billion capital increase, it would have incurred cash outflows from operating investing and financing activities. It is not highly likely that cash flows from operating activities will improve in the near future, and if the company fails to achieve targeted results in improving its operations, it may experience a deterioration in operating cash flows in the long term. It is recommended that investors monitor not only the fluctuations in net cash positions but also the cash flows due to operating investing and financing activities and the factors driving such changes in cash flows.

(3)    The Merger Agreement may be terminated in accordance with the termination provisions of the Merger Agreement. The termination provisions relating to appraisal rights of dissenting shareholders or the approval of the relevant authorities are as follows:

-        If, due to the exercise of appraisal rights by shareholders of Woori Finance Holdings dissenting to the Merger, Woori Finance Holdings is required to pay a share purchase price for an aggregate number of shares held by such shareholders that is greater than 15% of the total number of issued and outstanding shares of Woori Finance Holdings;

-        If the preliminary examination approval for listing on the Korea Exchange after the Merger has not been obtained by the Merger Date; or

-        If it is evident that the Merger Approval would not be obtained within six (6) months after the date of this Agreement, including where a Merger Approval has not been obtained prior to the Merger Date despite such Merger Approval having been applied for.

(4)    The schedule of the Merger set forth in this Securities Registration Statement is not final and is subject to change if grounds for amendment occur during the FSS’s public disclosure evaluation process.

(5)    New shares issued by the Bank are expected to be allotted and delivered in the Merger with respect to treasury shares owned by the Company. The decision to allot and deliver new shares with respect to treasury shares owned by the Company as of the date of the Merger (including any shares acquired by the Company prior to the Merger as a result of the exercise of appraisal rights by dissenting shareholders with respect to the Merger) in accordance with the Merger Ratio was based on the views in favor of the allotment of new shares with respect to the treasury shares owned by the non-surviving entity and the instances where new shares were allotted with respect to the treasury shares owned by the non-surviving entity. However, investors should note that there is no guarantee that a court will not reach a different conclusion in the future with respect to this issue.

(6)    Since August 2014, the Fair Trade Commission has been conducting an investigation into the collusion of loan and deposit interest rates among four major banks, Woori Bank, Kookmin Bank, Shinhan Bank and Hana Bank. The investigation is being conducted on the bank’s overall interest rate system and interest rates on loans and deposits. The results cannot be predicted, and any results of the investigation to be announced may affect the Bank’s operations and financial condition. Accordingly, investors should continue to observe the investigation results to be announced in the future.

(7)    Since 2010 until the date of submission of this Securities Registration Statement, there have been two institutional sanctions against the Bank (an additional one is expected), three sanctions against its executive officers (an additional one is expected), three institutional sanctions against Woori Investment Bank and five sanctions against its executive officers, in terms of institutional and executive officer sanctions imposed with respect to the parties to the Merger and their main consolidated subsidiaries.

(8)    There are no agreements for put options, call options, put back options, etc. between the merging parties or with a third party in relation to the Merger.

(9)    The Bank plans to succeed to or hire the executive officers and employees employed by the Company as of the date of the Merger, and there are no risks relating to the reorganization of personnel.

(10)  The effectiveness of this Securities Registration Statement pursuant to Article 120(3) of the FISCMA is not an acknowledgement of the truthfulness or accuracy of the matters contained herein nor the government’s guarantee or approval of the value of the securities.