Woori Financial Holding with 6 Trillion Won in Funds to Pursue Non-Bank M&A in Securities and Insurance Firms (Comprehensive)

Internal Rating Method Approval Expected This Month... Capital Adequacy ↑
Seeking Non-Bank Assets Such as Securities and Insurance Companies

[Asia Economy Reporter Kim Jin-ho] Woori Financial Group, which is on the verge of ‘complete privatization,’ is drawing attention as a major player in the mergers and acquisitions (M&A) market. Woori Financial Group plans to aggressively expand its size in securities and insurance companies by leveraging ‘6 trillion won in firepower’ to broaden its non-bank portfolio. This strategy is analyzed as a strong determination to further solidify its position as one of the ‘four major financial holding companies’ in its fourth year as a holding company next year.

According to the financial sector on the 19th, Woori Financial is actively reviewing M&A plans to expand its non-bank portfolio. Earlier, on the 6th, Sohn Tae-seung, Chairman of Woori Financial, held a ‘Subsidiary Competitiveness Enhancement Meeting’ with CEOs of major affiliates and emphasized, "Based on solid future performance and the momentum of successful privatization, we will actively strengthen the non-bank sector within the group through M&A or capital increases."

The market expects Woori Financial to begin full-scale M&A activities as early as the end of this year or at the latest early next year. Especially, the so-called ‘overlapping positive factors’ such as ▲record-high performance ▲complete privatization ▲approval of the internal ratings-based approach are expected by the end of this year, making it an opportune time for expansion through M&A.

The most notable factor is the approval of the ‘internal ratings-based approach.’ The Financial Supervisory Service plans to finalize the approval decision for Woori Financial within this month, and currently, the likelihood of approval is reported to be very high.

Woori Financial is currently the only one among the five major financial groups applying the standardized approach. The internal ratings-based approach is a method where a holding company with banks or affiliates applies risk models and standards it has developed itself to calculate risk-weighted assets (RWA). If Woori Financial switches from the standardized approach currently in use to the internal ratings-based approach, the risk-weighted assets will decrease, resulting in a 1 to 2 percentage point increase in the Bank for International Settlements (BIS) capital adequacy ratio.

Woori Financial’s M&A firepower is about 6 trillion won. This is an estimated scale based on Woori Financial’s double leverage ratio of 101.33% as of the end of June.

The area where Woori Financial is currently focusing most on M&A is the non-bank sector. Having successfully completed the acquisition and merger of capital and savings banks last year, the acquisition of securities and insurance companies is regarded as the final puzzle to complete the non-bank portfolio.

Originally, Woori Financial insisted on acquiring large securities firms such as Samsung Securities. However, as it has become difficult to find suitable targets due to the stock market boom over the past two years, it is reported that they have recently shifted interest to small and medium-sized securities firms. Yuanta Securities and Ebest Securities are mentioned in the market. An insider familiar with internal affairs said, "Even if we acquire small and medium-sized securities firms, we can merge them with Woori Investment & Securities to generate sufficient synergy, and Woori Financial has the capability to nurture them," adding, "Since the stock market is currently undergoing a correction, surprise deals involving large firms may appear, and we are paying attention to this."

As for insurance company targets, Dongyang Life Insurance and ABL Life Insurance are mentioned. When these two companies were previously on the market, Woori Financial was considered a strong acquisition candidate in the industry.

Woori Financial’s aggressive M&A announcement is interpreted as a measure considering the environment where M&A in the non-bank sector is essential to promote collaboration and synergy creation among affiliates. Currently, the proportion of Woori Bank within Woori Financial is absolute compared to other holding companies. Chairman Sohn previously expressed his intention to significantly expand the ratio of bank to non-bank sectors to 7:3 or 6:4 in the long term when Woori Financial was launched.

Meanwhile, Woori Financial Group’s third-quarter net profit forecast is 761 billion won, expected to significantly exceed market expectations. This surpasses the second quarter’s net profit of 752.6 billion won. The third-quarter earnings announcement is scheduled for the 25th.