Woori Financial to undergo FSS inspection over lending, M&A deals

Woori Financial Group Chairman Yim Jong-yong / Yonhap

Woori Financial Group and its banking, capital and card subsidiaries will undergo their regular inspection next month, the Financial Supervisory Service (FSS) said Tuesday. This is the latest development in the escalating scrutiny of the group’s questionable lending and business practices.

Also under review is the group’s capital adequacy related to mergers and acquisitions of insurers. Whether the probe advanced by a year would complicate Woori’s acquisition of Tongyang Life and ABL Life remains to be seen.

According to industry sources, the FSS sent a notice informing Woori of the regular investigation. The month-long regular inspection was initially scheduled for next year.

Market watchers said the scrutiny of Woori will be particularly rigorous, as indicated by the notice given amid — and despite — the ongoing regular examination of KB Financial Group and its banking subsidiary KB Kookmin Bank. Simultaneously regular inspections of two of Korea's top five financial groups is highly unusual.

The development follows a prosecution raid on the bank’s headquarters last week over suspicions that relatives of former group chairman Son Tae-seung were granted a total of 35 billion won ($26 million) in poorly evaluated loans between April 2022 and Jan. 16.

The FSS said the remaining outstanding balance of the loan came to 30.4 billion won, as of July 19. Over 88 percent, or 26.9 billion won, is backed by collateral but is non-performing. Up to 15.8 billion won will be unrecoverable, according to Woori Bank.

The group’s years of effort in acquiring the two life insurers could be thwarted by the pending FSS findings. A lack of internal control identified as a cause of the long-overlooked lending practices will restrict the holding firm's funding to its subsidiaries.

Also lingering is the Financial Services Commission, the FSS's supervisory body, potentially denying the acquisition pending a review of the capital adequacy ratio requirements, among other criteria.

Last week, Woori Financial signed a stock purchase agreement to acquire a 75.34 percent stake in Tongyang Life for 1.28 trillion won and the entire stake in ABL Life for 265.4 billion won. The price-to-book ratios for the two stood at 0.65 and 0.30, respectively, as of March 31.

The savings bank, capital and card subsidiaries of the group will soon face investigations by the FSS over similar allegations involving Son.

The three entities granted a combined 2 billion won in improperly assessed loans to the relatives of the former group chair.

“The scope of the October investigation will encompass risk management of the group and its bank subsidiary,” the FSS said.

Woori Financial Chairman Yim Jong-yong pledged to comply with the FSS's sanctions on Aug. 28 as part of an apology for the latest development concerning the group’s repeated employee embezzlements and questionable business practices over the past few years.