Woori Financial seeks approval for Tongyang and ABL acquisition by May

The decision on whether to approve Woori Financial Group's acquisition of Tongyang and ABL Life is expected to be made as early as May. Although the Financial Supervisory Service has decided to lower Woori Financial's management evaluation rating to grade 3, there are suggestions in the financial sector of a possibility of "conditional approval" based on improvements in management soundness.

According to the financial sector on the 18th, the Financial Services Commission plans to decide on Woori Financial's approval to acquire an insurance company, reflecting the management evaluation grade conveyed by the FSS. The FSS has decided to downgrade Woori Financial's management evaluation rating from grade 2 to grade 3 and to convey this to the Financial Services Commission.

On Jan. 15, Woori Financial submitted an application for subsidiary approval regarding Tongyang and ABL Life to the financial authorities. The financial authorities are required to decide on the approval within two months; however, they plan to extend the review period considering the examination of documents and the timing of the FSS's notification of the management evaluation rating.

A senior official in the financial authorities noted, "We may review the submitted documents and request additional documents, and the timing of receiving the FSS's management evaluation rating is also important," adding, "It is not mandatory to decide on the approval within two months of receiving the application."

The financial sector anticipates that the decision on Woori Financial's approval to acquire an insurance company could be made at the Financial Services Commission's regular meeting in May. The approval for Woori Financial's acquisition will go through an internal subcommittee before being finalized at the regular meeting.

Despite Woori Financial's management evaluation rating being downgraded from grade 2 to grade 3, there are indications within the financial sector that the likelihood of Woori Financial's acquisition of an insurance company falling through is low. According to current Financial Services Commission regulations, a financial group must maintain a management evaluation rating of grade 2 or higher to incorporate another financial company as a subsidiary. However, legally, the Financial Services Commission can approve subsidiaries for financial groups rated grade 3 at their discretion.

If Woori Financial's acquisition of Tongyang and ABL Life fails, there are not many financial companies that could acquire these insurance firms. This is because financial groups are adopting a conservative approach to mergers and acquisitions due to recent economic uncertainties. Although insurance companies like Lotte Insurance, KDB Life, and MG Non-life Insurance have products piled up in the market, there have been no successful mergers and acquisitions in the past year.

There is also concern that if the financial authorities do not grant permission for the acquisition, Woori Financial could lose the deposit of about 155 billion won paid to China Minmetals Insurance. Woori Financial included a clause in its stock purchase agreement with China Minmetals Insurance, the major shareholder of Tongyang and ABL Life, stating that if it does not receive the approval from the financial authorities, the deposit will be forfeited. A source from a major bank stated, "The Chinese government has approved the sale; however, if the Korean financial authorities deny the acquisition, the 155 billion won could lead to a controversy over 'national wealth outflow' to China."

In the financial sector, there are speculations that the financial authorities may approve Woori Financial's acquisition of the insurance company while imposing conditions such as improving capital soundness and strengthening internal controls. As of the end of last year, Woori Financial's Common Equity Tier 1 (CET1) ratio under the Bank for International Settlements (BIS) standards was 12.08%, just above the recommended 12% by the financial authorities. Other financial groups such as KB, Shinhan, and Hana maintain this ratio at over 13%. The financial authorities may propose a condition for Woori Financial to raise its CET1 ratio to a level similar to other financial groups within a certain period. Since this recent downgrade in management evaluation rating is attributed to improper lending involving the former chairman's relatives, the financial authorities are also likely to require improvements in lending practices and revisions of internal rules as part of the conditions.