Woori Financial’s faulty internal controls cast cloud over insurer takeover

Major banks based in South Korea were found to have been involved in inappropriate loans worth over 380 billion won ($260 million), the country’s top financial regulator announced Tuesday.
The Financial Supervisory Service revealed the results of an audit on major banks and financial firms here, confirming Woori Bank, KB Kookmin Bank and NH NongHyup Bank extended 482 improper loans worth a combined 387.5 billion won.
"The lack of internal control and unhealthy corporate environment are not limited to a certain financial firm or a person, but are a chronic problem for the whole financial circle," FSS Gov. Lee Bok-hyun said at a press briefing held at the watchdog’s headquarters Tuesday.
The audit showed that Woori Bank issued 101 improper loans worth 233.4 billion won. Of the amount, loans amounting to 73 billion won were tied to former Woori Financial Group Chair Son Tae-seung. Son was indicted last month for the loan scandal, which was presumed to be at around 35 billion won.
The FSS audit showed improper loans amounting to 45.1 billion won were taken out in relation to Son, after Woori Financial Group replaced him with the incumbent Chair Yim Jong-yong in March 2023, suggesting the chief replacement may not be enough to cut off the inappropriate connections.
Other loans worth 160.4 billion won were found to be tied to former and incumbent executives.
The revelation casts a shadow over Woori Financial Group’s attempt to acquire Tongyang Life Insurance and ABL Life Insurance as part of its push to expand its nonbanking portfolio. The financial service provider submitted the registration for acquisition approval to the authorities on Jan. 15.
Though the screening process is handled separately from the audit, the snowballing revelations are likely to negatively affect the results. If Woori Financial Group’s rating for management drops by one notch to Grade 3 under the five-tier system, it would be evaluated as "unqualified," potentially scuttling the acquisition.
Lee explained the screening would have to be wrapped up by this month for the Financial Service Commission to decide on the acquisition approval within March.
“But as the evaluation involves diverse factors, it is hard to specify a date for the announcement,” he said.
The audit showed KB Kookmin Bank and NH NongHyup Bank also issued inappropriate loans worth 89.2 billion won and 64.9 billion won, respectively. Some of the officials related to the issuance of the loans reportedly received bribes in favor.
While banks and officials involved in improper loans are to face penalties for their actions, the watchdog plans to map out a stricter supervisory system for banks.
“We are to draw up a set of measures to tighten international controls, strengthen risk management and improve the corporate environment, under the notion that systematic supervision is needed, along with the financial circle’s willingness to reform,” Lee said.
“The audit result shows more than just numbers related to the banking system's soundness, which could seem abstract. This is connected to the lenders' business management. Though the banks with and without internal controls may seem similar, the differences will eventually show.”