KB Financial has the inside track

While competition is expected to be fierce between KB Financial Group and NH Nonghyup Financial Group to acquire Woori Financial Group’s brokerage units, analysts note that the financial profile of the former group is stronger and puts KB Financial in a more favorable position.

According to a report released yesterday by Shinhan Investment Corporation, KB Financial Group has more capital flexibility to buy Woori’s six brokerage units, including Woori Investment and Securities and Woori Aviva Life Insurance.

“The total capital that can be contributed by KB Financial affiliates is about 3.6 trillion won ($3.2 billion) whereas the amount from affiliates of NH Nonghyup is estimated to be 2.7 trillion won,” said Kim Soo-hyun, a researcher at Shinhan Investment. “The reason why capital flexibility is important in the sale is because a financial group acquiring Woori Investment and Securities would have to purchase additional shares other than the 37.9 percent held by Woori Financial Group [the government] eventually to get more control.”

KB Financial Group is the country’s fourth-largest financial group by assets, while NH Nonghyup Financial Group is the fifth-largest. Both groups operate banks as their main businesses. KB Kookmin Bank is the largest lender in the country with a market share of 17 percent by deposits and 14 percent by assets. As of end of March, the share is 13 percent and 11 percent for NH Nonghyup Bank.

Though both KB Financial and NH Nonghyup Financial haven’t officially expressed their intentions to acquire Woori’s securities arm, Chairman Lim Young-rok of KB and Chairman Yim Jong-yong of NH Nonghyup have made remarks indicating their willingness to take part in bidding. Both groups are known to be in a desperate position as they aim to diversify into nonbanking businesses. The country’s banking sector has remained stagnant in the past several years because of a trend toward low interest rates, rising household debt and a sluggish economy.

After announcing detailed privatization plans in late June, the Financial Services Commission last month kicked off the first phase of the sales process by having the Korea Deposit Insurance Corporation announce a public sales notice of Woori Financial Group’s regional banks - Kyongnam Bank and Kwangju Bank - followed by the official sale announcement earlier this month of the brokerage units. The sale process for the third and final batch of affiliates, including Woori Bank, will start early next year.

Moody’s Investors Service also released a report noting that the financial portfolio of KB Financial Group is stronger than that of NH Nonghyup Financial Group.

“KB Financial Group’s low double leverage ratio of 100 percent at the end of June places it in a strong position to support Woori Investment and Securities,” the report stated. “Conversely, Nonghyup Financial Group’s modest financial profile would limit its capacity to support Woori Investment and Securities.”

By lee eun-joo [angie@joongang.co.kr]