FSS "Inadequate Risk Management"... Woori Financial Group Receives Grade 3 in Management Evaluation

"Risk Management and Potential Shock Both Inadequate"
More Downgraded Items Found Compared to Previous Evaluation
Final Decision Rests with the FSC... No Intention to Delay
Conditional Approval Previously Granted for Grade 3 Financial Holding Company M&A

The Financial Supervisory Service (FSS) has notified Woori Financial Group that its comprehensive management evaluation grade has been downgraded from grade 2 to grade 3. This comes three months after the completion of the regular inspection of Woori Financial Group and Woori Bank on December 13 last year.

As a result, obstacles are expected in Woori Financial Group's planned acquisition of Dongyang and ABL Life Insurance. In principle, if a financial holding company's management evaluation grade is below grade 3, acquiring subsidiaries becomes difficult. However, the final decision regarding the acquisition will be made by the Financial Services Commission (FSC).

On the 18th, the FSS stated, "By concentrating multiple inspection and review personnel for rapid processing, the management evaluation results were notified to Woori Financial Group."

Usually, management evaluations take about six months to a year, but the FSS explained that the management evaluation part was separated and prioritized independently from the regular inspection results of Woori Financial Group and Woori Bank.

The management evaluation is broadly composed of three parts: ▲Risk Management ▲Financial Condition ▲Potential Shock. Woori Financial Group received low scores in all areas except financial condition.

In the risk management section, deficiencies were found such as inadequate prior review during major management decisions like subsidiary mergers and acquisitions (M&A), insufficient management of subsidiary risk limits, and poor control over major subsidiaries’ large and repeated improper loans and financial accidents. In the potential shock section, issues such as inadequate business support and control over subsidiaries, and poor management of internal transactions within the group were discovered.

The FSS pointed out, "Compared to the previous management evaluation, there were more items downgraded than upgraded in detailed evaluation criteria," and added, "Compared to other financial holding companies, the risk management aspect is somewhat lacking."

Last year, when improper loans related to former Woori Financial Group Chairman Sohn Tae-seung’s relatives were revealed, the FSS expedited the regular inspection of Woori Financial Group. As a result, it announced in an interim report in February this year that improper loans totaling 233.4 billion KRW were confirmed.

The amount of improper loans related to former Chairman Sohn’s relatives was identified as 73 billion KRW. Of this, about 61%, or 45.1 billion KRW, was handled during the tenure of current Woori Financial Group Chairman Lim Jong-ryong, leading the FSS to hold the current management responsible as well.

Meanwhile, the final decision regarding Woori Financial Group’s insurance company acquisition lies with the FSC. The FSC has stated that it will decide on approval based on the FSS’s management evaluation results, following established principles.

According to the FSS’s Financial Holding Company Supervision Regulations, a financial holding company must have a comprehensive management evaluation grade of at least grade 2 to acquire a subsidiary. However, under Article 16, Paragraph 3 of the Financial Holding Company Act, subsidiary incorporation can be approved on the condition of improvements in management soundness and other factors.

The FSC can make decisions by comprehensively considering the financial holding company’s future capital expansion plans and other factors. In 2004, the financial authorities conditionally approved Woori Financial Group’s acquisition of LG Investment & Securities despite Woori’s management evaluation grade being 3 at that time.

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