By Kim Jae-won
Woori Financial Group, the nation’s second largest financial group, is facing a bumpy road ahead of its move to sell off its government-owned stake as a series of mishaps are major stumbling blocks to its privatization.
The group, headed by Chairman Lee Pal-seung, announced Thursday that it will invite bids for a controlling stake but market analysts expect investors to show a wait-and-see attitude as its share price has been falling after a stretch of bad news.
First of all, the Korea Deposit Insurance Corporation (KDIC), the biggest shareholder of Woori with a 57 percent stake, issued a warning against Woori Bank, a flagship of Woori Financial, for failing to meet the terms and conditions of the memorandum of understanding that it had signed with the group.
There are concerns that the group’s financial health is worsening due to a rise in bad loans though Woori celebrated joining the one trillion won net profit club.
It reported Wednesday its third-quarter earnings rose 5.14 percent from a year earlier on higher profit margins and a one-off gain.
Net income totaled 508.7 billion won ($451 million) in the July-September period, compared with 483.8 billion won the previous year, the group said in a regulatory filing. Woori reported its accumulated total net profit this year has reached 1.04 trillion won making the lender join the one trillion won net profit club for two consecutive years.
Despite the positive results, the stock market did not appreciate its performance. Woori saw its stock price go down 100 won, or 0.7 percent from the previous day closing at 14,500 won on Thursday.
Analysts are worried that Woori’s asset soundness is in bad shape, and expected that there is a possibility that it will slide to red in the coming quarter.
“Woori’s non-performing loan (NPL) ratio is quite high, and it increased further in the third quarter,” Lee Hyuk-jae, an analyst from IBK Investment & Securities, said.
The group’s bad debt ratio came in at 3.7 percent last quarter, up 0.7 percent from three months earlier. Its net interest margin (NIM), a key gauge of profitability, reached 2.29 percent in the third quarter, down from 2.36 percent in the second quarter.
Illegal lending to C& Group?
Woori Bank, the flagship of the group, has also been under fire for allegedly giving favorable treatment to the troubled C& Group and its subsidiaries when the lender provided more than 130 billion won of loans to the company a few years ago.
Park Hae-choon, currently chief of a real-estate development project company around Yongsan Station, was CEO of Woori from March 2007 to May 2008, while Park’s younger brother Taek-choon was chief executive of C& Heavy from early 2007 to late 2008.
C& Group had a total of 1.3 trillion won in loans from financial companies in October 2008 and two months ago it applied for a workout program. Among them, Woori was exposed to a vulnerable C& Group for a total 227.4 billion won _ 163.5 billion won under collateral and 63.9 billion won in a signature loan.
Financial experts pointed out that there are many irregular details in the loan process.
“It is weird that a lender would permit a loan under the collateral of stocks,” an employee of local lender said.
“Stocks are an unstable asset compared to other collateral. Even if a lender takes stocks as collateral, it is only for blue chips, such as Samsung Electronics. And even in such a case, a bank would loan an amount that was just half of the stock price.”
Woori provided a total 136.7 billion won to C& Heavy with 126.8 billion won in collateral. The lender also authorized 10 billion won as a signature loan for the new shipbuilding company.
Experts advised Woori to focus on improving its asset soundness to be better prepared for coming privatization.
“I think Woori needs to improve its profitability by changing its financial structure,” Joo Sang-chul, chief strategist of Kyobo Securities said.
“It is not clear which company will take over Woori yet, but those efforts will help the government take the initiative for the coming sale.”