Woori Financial Group faces mounting pressure to secure an insurance acquisition as insurers take on a greater role in bolstering profits and reducing banking dependence for major financial conglomerates.

Amid last year’s record-breaking earnings for local banking giants — KB, Shinhan, Hana and Woori — insurance units proved decisive. KB Kookmin Bank cemented its industry lead with its two insurers — KB Insurance and KB Life — posting a combined 1.11 trillion won ($775.6 billion) in net profit and logging 17 percent and 15 percent on-year growth, respectively.

The disparities in total earnings among major financial groups closely reflected differences in their insurance unit profits. KB posted a net profit of 5.08 trillion won, while Shinhan recorded 4.52 trillion won. The 560 billion won difference between the two closely aligns with the 599 billion won gap in their insurance earnings. Hana trailed KB by 1.34 trillion won with a net profit of 3.74 trillion won — a shortfall that mirrors the 1.41 trillion won difference between their insurance units.

As the only major domestic financial conglomerate without an insurance unit, Woori ranked last among the four, with a net profit of 3.09 trillion won.

While Woori Bank achieved a record 3 trillion won in profit, the group’s 92 percent reliance on banking poses a significant risk to portfolio diversification. In contrast, its peers show lower banking dependence, with KB at 60 percent, Shinhan at 74 percent, and Hana at 84 percent.

This context drives Woori’s active pursuit of insurance acquisitions. In August, the group signed stock purchase agreements for Tongyang Life Insurance and ABL Life Insurance, and is currently awaiting approval from the local financial regulator. Once finalized, Woori will secure a 75.34 percent stake in Tongyang and complete ownership of ABL Life.

During a recent earnings conference call, the chief financial officer emphasized that insurance acquisitions are vital for Woori's portfolio diversification, indicating the group expects to reduce its banking reliance to about 80 percent through these acquisitions.

Since assuming leadership in April 2023, Chair Yim Jong-yong has prioritized expansion in Woori’s non-banking business. Last year, the group acquired Korea Foss Securities and launched Woori Investment & Securities, marking its reentry into the investment banking sector after a decade.

The Financial Services Commission's approval of Woori's acquisition plans largely hinges on the Financial Supervisory Service's upcoming management evaluation rating of the company. However, ongoing investigations into significant financial incidents within the group — including over 70 billion won of improper loans involving relatives of a former chairman — could impede Woori's prospects of securing a favorable rating.

While the FSS' evaluation and the FSC’s final decision remain pending, industry expectations lean toward approval, particularly in light of recent remarks by FSS Gov. Lee Bok-hyun. In a meeting with local banking chiefs, Lee emphasized that Chair Yim must complete his term and take responsibility for financial missteps under his leadership.

“The governor has maintained a tough stance on Woori, but his recent remarks suggest a more conciliatory approach, indicating the regulator is unlikely to make a decision entirely against the company,” an industry official said on condition of anonymity. “Also, with Lee’s term ending in April, it’s unlikely he will make a strong move before then.”

Pressure on Korea’s financial watchdog to approve the deal has intensified following reports that Chinese regulators have greenlit Woori’s acquisition of Tongyang and ABL. If the deal falls through due to regulatory rejection, Woori could face a penalty of around 150 billion won, according to reports.

“The Chinese government’s approval will be an important factor for Korean regulators to consider. It’s reasonable to expect the deal to go through,” the official added.

To improve its chances, Woori has strengthened internal controls. In November, the group established an Ethics Management Office to oversee ethical policies and management oversight. It also introduced key policy improvements, including mandatory registration of credit information for executives and their relatives and enhancements to the insider reporting system.

With scrutiny mounting, FSC Chair Kim Byoung-hwan discussed the timeline during a press briefing Monday, saying, “We are still waiting for the FSS' evaluation report,” adding that it is difficult to predict when the FSC will complete its review. “Additional document requests or fact-checking could prolong the process,” he said.

The FSS is expected to submit its assessment of Woori’s management evaluation to the FSC within this month.

By Choi Ji-won (jwc@heraldcorp.com