Improper loan scandal holds back Woori’s drive to expand its non-banking portfolio
Woori Financial Group, South Korea’s fourth-largest financial service provider, may face a holdup in its push to acquire new insurers, as the local regulator has reportedly downgraded its management evaluation rating in response to the issuance of improper loans worth over 200 billion won ($138 million).
According to reports, the Financial Supervisory Service, the country’s watchdog, has finalized its management evaluation for Woori Financial Group, downgrading the bank's rating by one notch under the five-tier system from the previous Grade 2 to Grade 3.
It is the first time since 2004 that Woori Financial Group received a Grade 3 rating. The downgrade follows the discovery of a major loan scandal.
In February, the FSS announced its audit showed that Woori Bank issued 101 improper loans worth 233.4 billion won. Of the total amount, loans worth 73 billion won were linked to former Woori Financial Group Chair Son Tae-seung. Son has been indicted by the prosecution.
FSS Gov. Lee Bok-hyun warned Woori Financial is likely to be penalized for the incident, mentioning the responsibility of its incumbent chairman Yim Jong-ryong.
"(The chairman) is downright responsible for major malpractice that happened during his term. I do not intend to compliment the lack of internal control or inappropriate governance,” Lee said at a press conference held in February.
The downgrade could jeopardize Woori Financial’s push to acquire Tongyang Life Insurance and ABL Life Insurance. The watchdog is to deliver its evaluation to the Financial Services Commission, in charge of handling the acquisition approval. Woori Financial could be deemed unqualified to acquire a new affiliate with a Grade 3 evaluation, under the regulator’s supervisory provision for financial holding companies.
In August 2024, the group signed stock purchase agreements for the two insurers and is awaiting approval from the FSC. Under the deal, Woori will secure a 75.34 percent stake in Tongyang at the price of 1.28 trillion won and complete ownership of ABL Life at 265 billion won.
The FSC’s decision is likely to be finalized by May at the earliest. If the deal falls through due to regulatory rejection, Woori Financial could face a penalty of around 150 billion won.
Though Woori Financial has been rated Grade 3, the regulator could approve the acquisition on condition that Woori Financial pledges to improve its internal control and governance.
For instance, Woori Financial’s acquisition of LG Investment & Securities (now known as NH Investment & Securities) was approved in September 2004, though the financial service provider was rated Grade 3 at the time.
Yet, industry officials remain skeptical of Woori Financial’s decision to acquire the insurance duo owned by Chinese Anbang Insurance Group.
“Anbang Insurance Group may not be the most trustworthy business partner considering its reputation,” an official from the FSS said, referring to the Chinese insurance giant’s lawsuit with local asset manager Mirae Asset Global Investments.
In 2020, Mirae Asset agreed to buy US hotels from Anbang Insurance Group. The asset manager, however, did not close the deal, claiming Anbang had failed to carry out its prerequisite obligations under the contract. The Delaware Supreme Court ruled in favor of Mirae Asset the following year.
“It is hard to understand why Woori Financial decided to sign a deal with a partner that had issues with upholding its obligations,” the official said.
silverstar@heraldcorp.com
