[Darkened Financial Company M&A] Financial Holding Companies Racing for 5 Years... Mergers and Acquisitions Brake

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[Asia Economy Reporters Sunmi Park and Seungseop Song] Financial holding companies that have expanded their size through aggressive domestic and international mergers and acquisitions (M&A) have encountered temporary M&A limitations due to changes in the global economic environment caused by the spread of COVID-19 and domestic financial authorities' encouragement of capital expansion. Although business diversification through non-bank M&A is urgently needed to counter the offensive of internet banks and big tech (large information and communication companies) actively expanding their domains by breaking down boundaries in the financial industry, progress has been slow, raising concerns that innovation finance may inevitably face setbacks in the future.

According to the four major financial holding companies?KB, Shinhan, Hana, and Woori?on the 19th, except for the completion of previously ongoing domestic and international M&A deals, there has been no progress in landing major M&A deals since the second half of last year. KB Financial's last major deal was in August last year when it invested 2.34 trillion KRW to acquire Prudential Life Insurance, considered a major player in the insurance industry. Although KB Kookmin Card achieved an M&A result in January this year by acquiring 50.99% of Jay Fintech's shares, the scale was minimal at about 24 billion KRW.

Previously, after acquiring Hyundai Securities in 2016 and merging Hyundai Securities with KB Securities, KB Financial fully incorporated KB Insurance and KB Capital as subsidiaries through a public tender offer and stock exchange in 2017. Since July 2018, it has purchased shares of Indonesia's Bank Bukopin, investing 400 billion KRW to become the largest shareholder, and in the first half of last year, it aggressively acquired shares in overseas financial companies such as Cambodia's microfinance company Prasac MFI and Indonesia's installment finance company Sun Indo Parama Finance.

The situation at Shinhan Financial Group is similar. In September 2018, Shinhan Financial acquired 59.15% of Orange Life for 2.2989 trillion KRW and in October of the same year purchased 60% of Asia Trust for 193.7 billion KRW. Subsequently, it expanded its non-bank business division by acquiring remaining shares and incorporating subsidiaries. From 2018 to 2019, it actively pursued overseas financial company M&A, including Vietnam's consumer finance company PVFC and Indonesia's asset management company Archipelago. In August last year, it acquired Neoplux, a venture investment company put up for sale by Doosan Group as part of restructuring. However, since then, aside from spending 360 million KRW in January this year to acquire the remaining shares of Neoplux, there have been no notable M&A achievements.

Exchange and Overseas Business Trips Halted Due to COVID-19... "Portfolio Also Reached a Completion Stage"

Hana Financial has focused more on maximizing synergy with acquired companies rather than large-scale M&A investments since acquiring Hana Capital in February 2018, Vietnam Investment and Development Bank in November 2019, and The-K Non-Life Insurance in February last year.

Woori Financial, after launching as a holding company in January 2019, made aggressive moves by acquiring Dongyang Asset Management, ABL Global Asset Management, and International Asset Trust in the same year, and Ajou Capital in December last year. This year, it has concentrated on completing the full subsidiary incorporation of Woori Financial Capital without additional M&A.

So far, diversification of the non-bank portfolio through M&A has played a decisive role in expanding the size of financial holding companies, but since the start of the COVID-19 crisis last year, except for those already underway, M&A activities have effectively come to a halt. The pandemic has restricted the search for overseas M&A targets, and domestically, increased regulatory risks have made acquiring non-bank financial companies more difficult compared to the past. The rapid liquidity expansion has also contributed to rising corporate values of non-bank financial companies, reducing available M&A targets.

A financial holding company official said, "The recent slowdown in M&A is partly because the group's portfolio has reached a certain level of completion due to previous aggressive moves. From the perspective of global expansion, there could have been more overseas share acquisitions, but it is regrettable that exchanges have been restricted due to the suspension of overseas business trips caused by COVID-19."

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