Unfair Loans at Woori Financial, Dongyang Life Acquisition Stalled... Lee Bok-hyun "Proceed with Credit Evaluation Quickly" (Comprehensive)

Woori Financial's Improper Loans Reach 233.4 Billion KRW
Uncertainty Grows Over Dongyang Life Insurance Acquisition
FSS May Send Woori Financial's Management Evaluation Results to FSC This Month

Lee Bok-hyun, Governor of the Financial Supervisory Service. Photo by Heo Young-han younghan@

The Financial Supervisory Service (FSS) inspection revealed that the amount of improper loans at Woori Bank reached 233.4 billion KRW. In addition to Woori Bank, large-scale improper loans were also detected at KB Kookmin Bank (89.2 billion KRW) and NH Nonghyup Bank (64.9 billion KRW).

Lee Bok-hyun, Governor of the FSS, announced that the process of calculating the management evaluation rating will proceed quickly, separate from the bank sanctions. Depending on the FSS management evaluation rating, the results of the merger and acquisition (M&A) of Dongyang Life Insurance and ABL Life Insurance, which Woori Financial Group is pursuing, are expected to be affected.

Woori Bank's Improper Loan Amount Reaches 233.4 Billion KRW

On the morning of the 4th, the FSS held a briefing session on the '2024 Inspection Results of Holding Companies and Banks' at the FSS office in Yeouido, Seoul, announcing that it had detected large-scale improper loans totaling 387.5 billion KRW at Woori Bank, KB Kookmin Bank, and NH Nonghyup Bank.

Market attention focused on Woori Bank, which had the largest amount of improper loans. The amount of improper loans related to former Chairman Sohn Tae-seung’s relatives increased significantly to 73 billion KRW, nearly double the previously detected 35 billion KRW. Of the 73 billion KRW, 61.8%, or 45.1 billion KRW, was handled after the current management took office (March 2023). Among the improper loans (73 billion KRW), 46.3%, or 33.8 billion KRW, became non-performing.

Park Choong-hyun, Deputy Director of the FSS Bank Division, stated, "Considering that 84.6% of the 35 billion KRW in improper loans handled by the previous management became non-performing, the 32.8 billion KRW classified as normal among the improper loans handled by the current management is also highly likely to become non-performing in the future."

Besides improper loans related to the former chairman, 27 current and former senior executives, including department heads and branch managers, were found to have handled improper loans totaling 160.4 billion KRW. Of the total improper loans of 160.4 billion KRW, 76.6%, or 122.9 billion KRW, became non-performing. It was also found that 98.7 billion KRW, accounting for 61.5% of the total improper loans, were handled after the current management took office.

Improper loans were made by approving corporate loans unrelated to business purposes for short-term performance, issuing loans without verifying the authenticity of documents such as investment contracts lacking investor seals, classifying loans as normal even though the corporate representative disappeared after the loan or the corporation was closed, among other irregularities.

KB Kookmin Bank handled improper loans amounting to 89.2 billion KRW. There were also indications of receiving money and entertainment related to some loans. A team leader assisted developers and brokers with working loans, obtained false sales contracts and related documents, selected false borrowers eligible for loans, and induced changes to industries where loans were easier to obtain.

NH Nonghyup Bank handled improper loans totaling 64.9 billion KRW, and there were also indications of receiving 130 million KRW in money from borrowers and others for some loans. Cases were detected where branch managers and team leaders colluded with brokers and borrowers to inflate appraisal values based on false sales contracts. Additionally, to evade credit limits and approval standards, loans were approved by splitting them under multiple false borrower names.

Woori Bank Headquarters, Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Increased Uncertainty Over Dongyang Life Insurance M&A

As the scale of improper loans at Woori Bank was revealed to be very large, interest has grown over whether the merger and acquisition of Dongyang Life Insurance and ABL Life Insurance, which Woori Financial Group is pursuing, can actually be completed. If the management evaluation rating of Woori Financial Group, derived from the FSS’s regular inspection, is downgraded from the current level 2 to level 3 or below, the acquisition of the two life insurers itself may become difficult.

The FSS announced on the day of the inspection results that the calculation of the management evaluation rating, which had attracted attention, has not yet been completed. The management evaluation rating is derived based on regular inspections, and Woori Financial currently holds a level 2 rating. Given that the FSS has conducted a large-scale, intensive inspection and pointed out serious internal control deficiencies and an organizational culture that neglects risk management, there is a possibility that the rating could be lowered to level 3.

Governor Lee Bok-hyun emphasized that the calculation of the management evaluation rating necessary for the insurance company acquisition review will be separated from the sanction procedures, which usually take several months, and will be completed quickly on a 'two-track' basis. He said, "Woori Financial Group applied for approval of the insurance company M&A on January 15, and the review period is two months. Although the period can be extended, since this is a sensitive case, we will handle it as much as possible in principle."

He added, "If we can notify the Financial Services Commission of our opinion even by February, the FSC can make a decision in March. We are working to separate the sanction procedures and derive the management evaluation results independently."

Governor Lee reaffirmed the principle of handling the case strictly, saying, "There is no intention to reward the occurrence of such a large-scale improper loan incident." Regarding the inclusion of the fact that improper loans continued during the tenure of Lim Jong-ryong, the current chairman of Woori Financial Group, he explained, "We have received many questions about whether violations were repeated during the current CEO’s tenure, so we included it. I want to believe there is a will to prevent recurrence, but we need to look at it realistically whether will alone can solve the problem."

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