The Key is 'M&A'... Woori Financial Group Seeking Securities and Insurance Assets (Comprehensive)

1Q Woori Financial Non-Bank Profit Contribution 18.6%
Urgent Need to Strengthen Non-Bank Sectors Like Securities and Insurance with Strong Growth
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 best-ever first-quarter performance since its establishment as a holding company, is facing deep concerns. The absence of securities and insurance companies means that its non-bank sector performance significantly lags behind other financial holding companies. Although it has expressed intentions for mergers and acquisitions (M&A) for several years, the lack of suitable targets makes diversification of its non-financial portfolio challenging.

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 generating 589.4 billion KRW. 87.76% of the total group net profit came from Woori Bank. The non-bank profit contribution was around 18.6%, contrasting sharply with other financial holding companies where non-bank contributions approached half.

In Woori Financial's case, despite strong performance in the non-bank sector, the absence of securities and insurance companies resulted in a smaller overall pie and lower proportion. Woori Financial previously had Woori Investment & Securities, but it was transferred to NH Nonghyup Financial Group in 2014 due to government privatization policies. It was renamed NH Investment & Securities, which reported a net profit of 257.4 billion KRW in the first quarter, a 727% increase year-on-year.

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. However, to keep pace with the increasingly fierce leading bank competition, completing the non-bank portfolio spanning securities, insurance, card, and capital sectors is necessary.

Accordingly, since its transition to a holding company in 2019, Woori Financial has been continuously seeking targets to reduce its bank-heavy concentration and strengthen the non-bank sector. Chairman Sohn Tae-seung has shown willingness to acquire securities firms since early in 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 denied pursuing it.

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

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

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 posted 575.5 billion KRW, trailing behind Woori Bank.

For KB Financial, net interest income focused on banks increased by only 12.5% year-on-year, but net fee income surged by 44.3%. Of the net fee income, 67.4% came from non-bank sectors, with its proportion slightly rising from 57.7%. Shinhan Financial also saw interest income grow by 5.7%, while non-interest income expanded by 40.4%, driving growth.

Especially, 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 net profit from -21.4 billion KRW to 221.1 billion KRW. The profits of Prudential Life, acquired through M&A, 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 targets will remain difficult this year. The securities market's boom last year makes it unlikely for securities or insurance firms to be available for sale. Strong performance has increased corporate values, raising M&A costs, which is also a burden. A Woori Financial official explained, "We are always reviewing M&A opportunities in insurance and securities, but there are no targets. Even if targets appear, the cost-benefit must be justified, which is regrettable for a holding company."

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 shows strong determination to expand its non-bank sector. It acquired Shinhan Venture Investment last September and fully incorporated Shinhan Asset Management as a subsidiary in January this year. There are also expectations that it will attempt to acquire a non-life insurance company it does not currently own this year. KB Financial Chairman Yoon Jong-kyu stated in his New Year's address that "in the Southeast Asian market, we will actively explore businesses with high growth potential and seek additional M&A opportunities."

Woori Financial maintains its stance to steadily monitor potential targets. Another Woori Financial official said, "With the first-quarter performance turnaround, the market expects annual net profit growth, and we especially want to strengthen the non-bank sector. If M&A targets in securities or insurance that can create synergy with existing subsidiaries appear, we will actively consider them."

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