Lee Chan-woo Inaugurated as Chairman of NongHyup Financial... Numerous Challenges Ahead

Lee Chan-woo, former Senior Deputy Governor of the Financial Supervisory Service, has been inaugurated as the 8th Chairman of NH Nonghyup Financial Group. Attention is focused on how he will address various challenges, from strengthening the group's competitiveness to managing relations with the Nonghyup Central Association.

According to financial circles on the 4th, Lee was appointed as Chairman of Nonghyup Financial Group through the Executive Candidate Recommendation Committee and an extraordinary shareholders' meeting the day before. After passing the civil service exam, he consistently worked in economic departments such as the Ministry of Finance and Economy and the Ministry of Strategy and Finance. After serving as Deputy Minister of the Ministry of Strategy and Finance, he was the Chairman of the Economic Innovation Promotion Committee at the Gyeongnam Provincial Government during Governor Kim Kyung-soo’s tenure and concluded his public service career as Senior Deputy Governor of the Financial Supervisory Service. He then joined as an outside director of Suhyup Bank in December last year but promptly resigned after being appointed Chairman of Nonghyup Financial Group.

The Nonghyup Financial Executive Recommendation Committee evaluated, “(Chairman Lee) has broad work experience ranging from economic policy to practical tasks in government departments such as the Ministry of Strategy and Finance, possessing insight into finance and macroeconomics overall. Having served as Senior Deputy Governor of the Financial Supervisory Service, he has high expertise and understanding of the financial industry, equipping him with all the necessary capabilities as the CEO of a financial holding company.”

Without an inauguration ceremony, Chairman Lee immediately began his term, facing numerous challenges. First, he must work closely with subsidiary CEOs to strengthen the competitiveness of the holding company’s affiliates. In December last year, Nonghyup Financial Group replaced CEOs in six of its nine subsidiaries, including the holding company chairman, bank, life insurance, card, non-life insurance, capital, and savings bank. Most of the replaced CEOs are from the Yeongnam region, similar to Kang Ho-dong, Chairman of the Nonghyup Central Association.

Nonghyup Financial’s performance is the lowest among the five major financial holding companies (KB, Shinhan, Hana, Woori, and NH Nonghyup). Its cumulative net income for the third quarter of last year was 2.3151 trillion KRW. This is about half of KB Financial’s 4.3953 trillion KRW and Shinhan Financial’s 3.9856 trillion KRW, and shows a 1 trillion KRW gap with Hana Financial’s 3.2254 trillion KRW. Compared to Woori Financial, which lacks a non-bank portfolio and earned 2.6591 trillion KRW, Nonghyup Financial is behind by 300 billion KRW. It is also only 117.4 billion KRW ahead of IBK Industrial Bank (2.1977 trillion KRW), threatening its position among the top five financial holding companies. This is due to the declining profitability of its core affiliate, Nonghyup Bank, and poor performance of non-bank affiliates that should act as cash cows, such as insurance. Nonghyup Bank’s net profit was 1.6561 trillion KRW, about 53% of the top-ranking Shinhan Bank’s 3.1028 trillion KRW.

A photo of Lee Chan-woo, Chairman of NongHyup Financial Group, during his time as Vice Minister of the Ministry of Economy and Finance.

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One of the causes hampering performance is the issue of agricultural support business expenses. Agricultural support business expenses are contributions collected by the Nonghyup Central Association under the pretext of supporting farmers. In the third quarter of last year, Nonghyup Financial sent 458.3 billion KRW in farmland expenses to the Central Association, an increase of 88.8 billion KRW compared to 369.5 billion KRW in the same period the previous year. From 2012 to the third quarter of last year, the Central Association received a total of 5.217 trillion KRW in farmland expenses. Nonghyup Financial has no practical authority over the calculation of these expenses. The levy rate is decided at the Nonghyup Central Association’s general meeting and then notified to Nonghyup Financial.

Dialogue with the Central Association is necessary, but whether actual negotiations will take place is uncertain due to Chairman Kang’s strong influence. According to the Nonghyup Act, the Central Association Chairman is a non-executive honorary position without official personnel authority. The chairman of Nonghyup Financial and others are recommended by the Personnel Recommendation Committee and decided by the board of directors. However, the board includes not only the chairman but also regional Nonghyup cooperative heads and vice-chairmen close to Chairman Kang. Through this, Chairman Kang appears to have placed his associates or people from his region as heads of affiliates. Chairman Lee is also from the Busan-Gyeongnam region, like Chairman Kang.

Even if Chairman Lee manages independently without being overly cautious, it is unlikely he will be free from influence. The holding company’s board of directors and surrounding executives are all part of Chairman Kang’s faction. Kim Byung-hwa, a lawyer recently appointed as the board chairman, has ties with Chairman Kang from their time together on the Nonghyup Central Association board. Lee Jae-ho, Executive Vice President of Nonghyup Financial’s Strategic Planning Division, who served as acting chairman until the day before, was branch manager of Nonghyup Bank’s Hapcheon branch when Chairman Kang was head of the Hapcheon Yulgok Nonghyup cooperative.

This could also pose an obstacle to resolving internal control issues within the group. Industry insiders point out that due to the governance structure centered on the Central Association, individuals without financial experience are being placed in key positions in Nonghyup Financial-related affiliates. Nonghyup Bank disclosed the highest number of financial accidents exceeding 1 billion KRW (6 cases) among the five major commercial banks last year.

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