Financial Supervisory Service Partially Approves Woori Financial Group's Internal Ratings-Based Approach... Capital Adequacy Increases

The Financial Supervisory Service (FSS) has partially approved Woori Financial Group's change to the internal ratings-based (IRB) approach. As a result, Woori Financial's Basel Committee on Banking Supervision (BIS) capital adequacy ratio is expected to increase, improving its capital-raising capacity.

According to financial industry sources on the 1st, the FSS recently held an approval review committee meeting and approved Woori Financial Group's plan to partially switch from the standardized approach to the IRB approach. However, the external audit corporations and credit card sectors require additional verification and were excluded from this approval.

The IRB approach is one method of assessing risk-weighted assets. Using the IRB approach results in relatively lower risk assets compared to the standardized approach, which can lead to a higher BIS ratio.

Woori Financial expects its BIS ratio to rise by approximately 1.2 percentage points following the IRB approval.

A Woori Financial representative stated, "There will likely be a positive impact, especially regarding financial support related to the novel coronavirus disease (COVID-19)."

The financial sector is paying attention to the possibility that Woori Financial may take a more aggressive stance on mergers and acquisitions (M&A). The acquisition of Aju Capital is being discussed immediately.

Choi Jung-wook, a researcher at Hana Financial Investment, predicted, "If Woori Financial acquires Aju Capital as a subsidiary in the third quarter, a one-time profit of about 100 billion KRW is expected, including approximately 45 billion KRW from fund liquidation gains at Woori Bank and 55 billion KRW from group bargain purchase gains (the undervaluation amount arising when acquiring a company at a price lower than its net assets)."

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