FSS downgrades Woori's management rating over 73 billion won loan scandal

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FSS downgrades Woori's management rating over 73 billion won loan scandal

Published: 17 Mar. 2025, 17:30

SHIN HA-NEE
[email protected]

Audio report: written by reporters, read by AI

Woori Financial Group Chairman Yim Jong-yong, left, and Financial Supervisory Service Gov. Lee Bok-hyun converse during a signing ceremony for the training of independent directors in central Seoul on Feb. 13. [YONHAP]

The Financial Supervisory Service (FSS) has finalized its management evaluation for Woori Financial Group, downgrading the bank's rating from the previous Grade 2, “Satisfactory,” to Grade 3, “Less than satisfactory.”

The decision follows last year’s discovery of a major loan scandal at the country's fourth-largest financial group and a subsequent investigation launched by the FSS.

Regardless, Woori’s bid to acquire Tongyang Life Insurance and ABL Life Insurance is likely to receive conditional approval from authorities, according to an exclusive report by the JoongAng Ilbo, an affiliate of the Korea JoongAng Daily.

The JoongAng Ilbo reported on Monday, citing financial authority sources, that the FSS finalized its decision to lower Woori Financial Group’s rating over its faulty internal controls and risk management failures.

The financial watchdog assesses banks on their management performance and practices in a five-tier system, ranging from Grade 1, “Strong,” to Grade 5, “Critically deficient.”

The latest downgrade follows the FSS’s detection last August that Woori Bank granted improper loans to borrowers linked to former Woori Chairman Son Tae-seung.

In October, the regulator began a regular inspection — which is conducted once every two to five years — of Woori Financial Group, and raided the offices of incumbent Woori Financial Group Chairman Yim Jong-yong and then-CEO Cho Byung-kyu, who later stepped down amid the allegations, in November.

The amount of illicit loans related to the former chairman was initially estimated at 35 billion won ($24 million), but increased to 73 billion won in the regulator’s announcement in early February following the inspection.

FSS Gov. Lee Bok-hyun repeatedly criticized Woori over its weak internal control system, and warned last month that he did not “intend to reward [Woori] for its weak internal controls or inappropriate corporate culture,” foreshadowing a downgrade.

As Woori has been seeking to acquire Tongyang Life Insurance and ABL Life Insurance for a combined 1.55 trillion won to diversify its business portfolio, heightened regulatory pressures on the group have been casting doubts over the regulatory prospect of the deals.

The Financial Services Commission (FSC), however, which has the final say in approving Woori’s acquisition plan, may grant conditional approval regardless of the downgrade. The law allows the FSC to approve a financial holding firm’s incorporation of a subsidiary on the condition that improvement measures for management practices are implemented.

In 2004, for example, authorities granted conditional approval for Woori Finance Holdings’ acquisition of LG Investment & Securities despite Woori's Grade 3 rating at the time.

Moreover, the dismissal of the planned acquisitions could incur financial damages for subscribers if the insurers face a shutdown or bankruptcy, a possibility that may further encourage the regulator to grant approval.

As Woori’s board of directors approved the acquisitions in August last year and signed agreements with China’s Dajia Insurance Group, the largest shareholder of Tongyang and ABL, the FSC’s rejection could cost Woori 10 percent of the deals, or 150 billion won, paid as a down payment.

Woori Bank headquarters building in Jung District, central Seoul [WOORI FINANCIAL GROUP]

Woori Financial Group filed its applications for the acquisitions of the two insurers to the FSC on Jan. 15, and is currently devising plans to its enhance internal controls and its capital adequacy ratio.

“The FSC has the regulatory approval authority to prevent an underqualified financial firm from pursuing inappropriate merger and acquisition deals,” said Yang Jun-sok, economics professor of the Catholic University of Korea.

“While firms should be held accountable for poor management, [regulators] should not hinder the industry’s progress.”

BY KIM KYUNG-HEE, KIM NAM-JUN [[email protected]]