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The Financial Supervisory Service (FSS) will begin its regular inspection of Woori Financial Group and Woori Bank next month. The inspection is expected to cover various aspects of management, from allegations of improper loans to relatives of former Woori Financial chairman Son Tae-seung to the capital adequacy related to the insurance company mergers and acquisitions (M&A) of Woori Financial.
According to the financial industry on the 3rd, the FSS sent a notice of regular inspection to Woori Financial and Woori Bank the day before. The FSS’s regular inspection of Woori Financial and Woori Bank is the first in about three years since the end of 2021.
Although Woori Financial and Woori Bank were not included in the FSS’s list of regular inspection targets this year, the schedule was moved up to proceed next year. Currently, the FSS is also conducting a regular inspection of KB Financial Group and Kookmin Bank, which is rare for two major financial holding companies to undergo simultaneous regular inspections.
During the inspection, the FSS plans to focus on examining the entire business operations of the holding company and bank, including the allegations of improper loans to relatives of former chairman Son, credit handling, internal control systems, and more.
Woori Bank recently disclosed that it extended loans totaling 61.6 billion won to corporations or borrowers related to Son’s relatives over the past four years, with 35 billion won suspected as improper loans that did not follow normal standards and procedures.
It is also expected that the FSS will scrutinize the capital adequacy related to the insurance company M&A that Woori Financial has been actively pursuing. Woori Financial held a board meeting on the 28th of last month to pass resolutions on the acquisition of Dongyang Life and ABL Life and signed a Stock Purchase Agreement (SPA) with a Chinese multinational insurance group.
Upon the consolidation of Dongyang and ABL Life as subsidiaries through the required procedures, Woori Financial will complete its business portfolio as a comprehensive financial group encompassing banking, securities, and insurance industries. However, uncertainties remain due to the ongoing investigation by prosecutors into the improper loans involving former chairman Son’s relatives.
The approval of the subsidiary consolidation by financial authorities may lead to stricter scrutiny depending on the interpretation of the scope of ‘feasibility.’ According to Article 17 of the Holding Company Act and Article 13 of the Enforcement Decree, the operation of the businesses should be deemed suitable for the continuous conduct of operations and maintenance of sound management, without violating laws and posing a risk to sound financial order. The key issue will be whether Woori Financial, whose improper loan issues have expanded to its non-bank subsidiaries following Woori Bank, can be recognized as ‘feasible.’
Meanwhile, the FSS will also launch on-site inspections of Woori Financial Savings Bank, Woori Capital, and Woori Card related to the allegations of improper loans to relatives of former chairman Son. The FSS reportedly found that loans of around 700 million won were extended by Woori Financial Savings Bank, about 1.2 billion won by Woori Capital, and around 200 million won by Woori Card.