Woori Financial Group Faces Dilemma in Seeking Securities and Insurance Company Assets

Q1 Woori Financial Non-Bank Profit Contribution 18.6%
Urgent Need to Strengthen Non-Bank Sectors like Securities and Insurance
Low Interest Rates and Stock Market Boom Raise Value, Making M&A Difficult

[Asia Economy Reporter Song Seung-seop] Woori Financial Group, which posted its highest-ever first-quarter earnings since its establishment as a holding company, is facing deep concerns. The absence of securities and insurance companies has caused its non-bank sector performance to lag significantly behind other financial holding companies. Although it has expressed intentions for mergers and acquisitions (M&A) for several years, voices are emerging that portfolio diversification into non-financial sectors is not easy due to the lack of suitable acquisition targets.

According to the financial sector on the 30th, Woori Financial Group's net profit for the first quarter of this year was 671.6 billion KRW, with bank affiliates earning 589.4 billion KRW. 87.76% of the total group net profit came from Woori Bank. The contribution of non-bank profits was around 18.6%, contrasting sharply with other financial holding companies where non-bank profit contributions approached half.

In Woori Financial's case, despite the non-bank sector's good performance, the overall pie was small and the proportion was low due to the absence of securities and insurance companies. Woori Card, considered a core non-bank affiliate of Woori Financial, achieved a net profit of 72 billion KRW this quarter. Aju Capital (now Woori Capital), acquired last year, also earned 35 billion KRW. To keep pace with the increasingly fierce leading bank competition, completing the non-bank sector portfolio spanning securities, insurance, card, and capital is necessary.

Accordingly, since its transition to a holding company in 2019, Woori Financial has been continuously seeking acquisition targets to reduce its concentration in banking and strengthen the non-bank sector. Chairman Sohn Tae-seung of Woori Financial has also shown a willingness to acquire securities companies since the early days of his tenure. Last year, Yuanta Securities and Kyobo Securities were rumored to be up for sale. Recently, DS Investment & Securities came onto the market, sparking acquisition rumors, but Woori Financial has drawn a line, stating it is not pursuing the deal.

Growing Non-Bank Earnings... Finding Securities and Insurance Companies is Key

The problem is that the importance of the non-bank sector is expanding more and more. For KB Financial Group, non-bank affiliates contributed 48.6% of the 1.2701 trillion KRW net profit in the first quarter, up 22.4 percentage points from 26.2% in the same period last year. During the same period, Shinhan Financial Group's non-bank sector also increased by 13.6 percentage points, accounting for 48.1% of its 1.1919 trillion KRW net profit. Hana Financial Group's figure approached 39.9%.

Meanwhile, the net profit of traditional revenue sources, banks, is becoming less significant. KB Kookmin Bank and Shinhan Bank posted net profits of 688.6 billion KRW and 664.2 billion KRW, respectively. The difference with Woori Bank is around 100 billion KRW. Hana Bank, with 575.5 billion KRW, is currently behind Woori Bank.

In particular, the low-interest-rate environment, stock investment boom, and prolonged COVID-19 pandemic have sharply increased the value of securities and insurance companies. KB Securities improved significantly, turning its net profit indicator from -21.4 billion KRW to 221.1 billion KRW. The profits of Prudential Life, incorporated through acquisition, were reflected for the first time, boosting earnings. At Shinhan Financial, the net profits of Orange Life and Shinhan Life, which are set to merge in July, nearly doubled to 107.7 billion KRW and 72.8 billion KRW, respectively.

However, the outlook is that Woori Financial's search for acquisition targets will remain difficult this year. The securities market experienced a boom last year, making it hard for securities or insurance companies to come onto the market. The increase in corporate value due to strong performance has also raised M&A costs, adding to the burden. A Woori Financial official explained, "We are always reviewing M&A in insurance and securities, but there are no targets. Even if targets appear, the cost-benefit must be reasonable, which is currently disappointing from the holding company's perspective."

Another obstacle is that other financial holding companies remain aggressive in M&A. The fiercer the competition, the lower the chances of acquisition and merger, and the higher the prices. Shinhan Financial is showing strong determination to expand its non-bank sector. Last September, it acquired Shinhan Venture Investment, and in January this year, it fully incorporated Shinhan Asset Management as a wholly-owned subsidiary. There are also expectations that it will attempt to acquire a non-life insurance company, which it currently does not own, this year.

This content was produced with the assistance of AI translation services.