Jun Ji-hye, a reporter at the finance desk of The Korea Times, focuses primarily on economic policy and government agencies, mainly covering the Ministry of Finance and Economy, the Ministry of Budget and Planning, the National Tax Service and the Korea Customs Service. She previously covered financial authorities, including the Financial Services Commission and the Financial Supervisory Service, and earlier worked on the political, city and business desks, reporting on a wide range of issues.
Management rating downgrade complicates Woori’s insurance acquisitions
Yim Jong-ryong, left, chairman of Woori Financial Group, speaks to Lee Bok-hyun, the governor of the Financial Supervisory Service, at the signing ceremony for the agreement on enhancing the capabilities of outside directors, held at the Korea Banking Institute in Seoul, Feb. 13. Yonhap
By Jun Ji-hye
Woori Financial Group’s planned acquisitions of Tongyang Life Insurance and ABL Life Insurance, worth approximately 1.55 trillion won ($1 billion), have hit a snag as the Financial Supervisory Service (FSS) decided to downgrade the company’s management assessment rating from Level 2 to Level 3, industry and government officials said Monday.
A financial holding company must have a management assessment rating of at least Level 2 to incorporate new subsidiaries.
According to officials, the country’s financial watchdog completed verbal consultations with the Financial Services Commission (FSC) to downgrade Woori’s rating by one level.
“We plan to officially notify the company later this week,” an FSS official said.
In August last year, Woori signed stock purchase agreements to acquire 70 percent of Tongyang Life’s shares for some 1.28 trillion won and a 100 percent stake in ABL Life for about 265.4 billion won.
As a result of the FSS's latest decision, however, these planned acquisitions have hit a major roadblock.
Under financial holding company supervision regulations, acquiring a subsidiary is essentially prohibited if the management assessment rating is below Level 3.
If the acquisition is not completed by August this year, Woori stands to lose its 154.9 billion won deposit.
This decision is a follow-up measure by the watchdog following last year’s on-site inspection against the firm.
The FSS moved up its regular inspection of Woori Financial Group by a year and conducted it in October after revelations of improper loans worth 73 billion won linked to the relatives and associates of Sohn Tae-seung, the firm’s former chairman.
Including these, the FSS announced on Feb. 4 that a total of 233.4 billion won in improper loans across 101 cases had been identified at Woori.
The FSS also pointed out issues in Woori’s acquisition process of the two insurers owned by China’s Dajia Insurance Group, stating that the company failed to properly report the matter to its board of directors.
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When inspection results were announced, the FSS stated, “We will soon determine Woori’s rating, reflecting the inspection findings.”
Determining the management assessment rating typically takes more than a year, but in this case, the process was expedited considering the firm’s pending insurance acquisitions.
The management assessment for financial holding companies is broadly categorized into three areas — risk management, which accounts for 40 percent, financial soundness at 30 percent and potential shocks at 30 percent.
The downgrade was reportedly driven by lower scores in risk management, which covers internal controls and potential shocks, which assess subsidiary management.
However, a rating of Level 3 or lower does not necessarily mean the acquisition will be entirely canceled, as the final approval rests with the FSC, the supervisory body above the FSS.
If Woori Financial is deemed to have met certain conditions, such as increasing its capital or disposing of nonperforming assets, the acquisition could still be approved.
An FSC official said, “We will make a fair decision based on principle."