[Issue Interview] "Woori Financial's M&A Diversifies Revenue... Also Beneficial for Insurance Policyholders"

Kim Ji-young, Head of Kyobo Securities Research Center Interview
M&A Needed for Financial Holding Companies' Growth
Opportunity to Expand Non-Interest Sectors
Securing Product Diversity in Asset Management
Acquisition PBR Not High
Positive Stock Outlook After Woori Financial's Insurance Company Acquisition

Kim Ji-young, Head of Research Center at Kyobo Securities, is being interviewed at the Kyobo Securities headquarters in Yeouido, Seoul, on the 1st. Photo by Kang Jin-hyung

It has been evaluated that if Woori Financial Group succeeds in acquiring an insurance company, it can expand profits in non-interest sectors and offer a variety of financial products to consumers. Furthermore, from the perspective of insurance policyholders, Woori Financial's mergers and acquisitions (M&A) are considered advantageous.

On the 1st, Kim Ji-young, head of the Kyobo Securities Research Center, said in an interview with Asia Economy, "In a low-growth environment, there is nothing better than M&A for the financial industry to grow."

Kim explained, "One of the demands foreign investors have for the Korean financial industry is profit diversification. If Woori Financial acquires an insurance company, it can see tangible effects in portfolio diversity and product development tailored to customer needs."

According to data published by Samsung Securities on 'Non-bank profit contribution of financial holding companies,' KB Financial Group stands at 45.9%, Shinhan Financial Group at 34.5%, Hana Financial Group at 15.4%, and Woori Financial Group at 4.6%. This shows that Woori Financial's profits are heavily concentrated in banking. Nevertheless, its operating profit surpassed 3 trillion won in 2024. There are also views that acquiring non-bank affiliates can capture two benefits at once: profit expansion and revenue diversification.

The following is a Q&A with Director Kim.

- How do you evaluate Woori Financial Group's acquisition of an insurance company? What specific synergies are expected?

▲ From the perspective of offering customers a variety of financial products, the content of customer service can be enriched. Finance is broadly divided into corporate finance and personal finance. Corporate finance tends to have high profit volatility depending on economic trends. However, personal finance leads to asset management growth. In the past, asset management had a strong tendency for banks, insurance, and securities to sell different types of financial products separately, but currently, customers want to see various products in one place. Looking at overseas financial companies, those that offer diverse customer products within one financial institution show continuous growth.

- Expanding non-bank profits is a major issue for financial holding companies. If Woori Financial succeeds in acquiring an insurance company, will revenue structure diversification be possible?

▲ Dramatic changes cannot be seen in the short term, but positive changes are expected within at least 2 to 3 years. Above all, I believe it can realize product diversification and profit growth through securities business in addition to insurance.

- The PBR for acquiring Dongyang Life and ABL Life is around 0.65 to 0.67, which seems somewhat higher than other insurance companies. What is your view on this?

▲ Considering the recent price-to-book ratio (PBR) levels of Korean financial companies, it may be somewhat high. However, Dongyang Life had a relatively high valuation based on its return on equity (ROE) and insurance growth rate, which were not low compared to competitors in the past. Considering the customer base and growth potential of the two companies, I judge that the acquisition is attractive.

- With the introduction of IFRS17, insurance companies' profit volatility is expected to increase. Is there a risk that future profit-generating capacity may differ from previous expectations?

▲ The original purpose of introducing IFRS17 was to improve comparability of insurance accounting standards, which were somewhat difficult, with manufacturing. Now that it has been two years, I think it will take some time to stabilize. Recently, it is understood that financial authorities are considering measures to reduce profit volatility caused by IFRS17. The profit volatility due to IFRS17 is largely due to interest rate volatility. This applies to all insurance companies, and after related system adjustments, it is expected to stabilize, so the related risk does not seem significant.

- What impact do you think Woori Financial's acquisition of an insurance company will have on the insurance industry? Please share both positive and negative aspects.

▲ Ultimately, an insurance company's profit-generating ability depends on how timely it launches, sells, and manages insurance products that meet customer needs. In the asset management area, the bank counter still accounts for the highest proportion where a financial product shows high sales. When asset management products were mega hits in the past, many financial products such as equity-linked securities (ELS), wrap accounts, equity funds, and pension insurance were sold through banks. There is a possibility that competition may intensify accordingly. However, from the customer's perspective, it is positive in that opportunities to subscribe to diverse and competitive insurance products based on a more stable parent company will increase.

- If Woori Financial acquires an insurance company, what about the stock price trend? How will the market view it?

▲ The stock price is positive upon successful acquisition. When the market looks at Woori Financial, compared to the three competitors (KB Financial, Shinhan Financial Group, Hana Financial), there is concern that profit diversification is not significant. Acquiring sizable life insurers such as Dongyang Life and ABL Life solves this issue at once.