Woori eyes possible M&A opportunity amid brokerages' rising delinquency rate

Woori Financial Group Chairman Yim Jong-yong speaks during its donation event in Seoul, June 29. Yonhap

By Lee Min-hyung

Woori Financial Group is forecast to identify the ongoing financial turmoil ― sparked by brokerages' rising delinquency rates from their real estate project financing ― as a possible opportunity for its long-awaited acquisition of a securities company.

Securities firms are moving to pile up more allowance for bad debts amid the rapid deterioration of real estate sentiment. A sense of fear is reaching its peak after MG Community Credit Cooperatives exhibited signs of a possible bank run due to its soaring loan default rate particularly over project financing.

As the delinquency rates for brokerages' real estate project financing top the list of the financial industry here, chances are some of them may end up failing to tackle the current crisis and be put up for sale.

It remains to be seen whether that scenario becomes a reality, but industry sources said they cannot rule out the possibility, as no rate cuts are expected in the near future.

“Most major brokerage houses are stepping up their risk management capabilities on the real estate project financing, but some small and medium-sized securities firms are exposed to a bigger risk due to their heavier reliance on the business,” a source from the financial industry said.

According to a recent report released by the Korea Capital Market Institute, a group of 16 small and medium-sized securities firms were more vulnerable to the project financing crisis than the eight top brokerage companies. The report analyzed each group's real estate project financing debt guarantee balance-to-equity ratio.

The figure for the larger group increased to 22.7 percent as of the end of 2022, up 5.5 percentage points from a year earlier. But that of the smaller one rose with a bigger margin of 7.4 percentage points to 39 percent during the same period.

Given Woori Financial Group Chairman Yim Jong-yong has underscored his strong interest in taking over a brokerage house, the financial holding firm is expected to pay special attention to how mid-tier securities firms tackle the ongoing crisis.

Among the nation's top five financial holding companies ― KB, Shinhan, Hana, NongHyup and Woori ― Woori is the only one without a brokerage affiliate. As the securities sector is one of the biggest revenue streams for non-banking businesses among Woori's rivals, the company is also going all-out to acquire one from the market.

Amid the worsening sentiment on brokerages' project financing crisis, the KRX Securities Index experienced a sharp decline over the past month. According to the Korea Exchange, the figure fell by 7.23 percent between June 7 and July 10. This is a bigger drop compared with the benchmark KOSPI, which fell 3.62 percent during the same period.