April 20, 2024

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A Woori Bank branch in Seoul (Yonhap)

Approval from the government to use an internal ratings-based approach for calculating risk-weighted assets will clear hurdles for Woori Financial Group to pursue more mergers and acquisitions with higher capital adequacy.

On Nov. 2, Woori received the green light from the country’s Financial Supervisory Service to use the IRB approach, which allows banks to assess risk weights based on the internal rating of borrowers. It helps the bank cut the weight of risk-weighted assets and raise the capital adequacy ratio calculated based on the Bank for International Settlements guideline.

With the approval, the financial group’s BIS capital adequacy ratio is expected to increase by approximately 1.3 percentage points, while its total capital will increase by 2 trillion won ($1.69 billion).

Woori is the last among the country’s top four financial groups to adopt the internal ratings-based approach. KB Kookmin, Shinhan and Hana, each of which transformed to a financial group holding system prior to Woori, are already using the method.

Market onlookers expect that the company will search for acquisition targets in the nonbanking financial sector.

Among financial holding companies here, Woori is the only one that does not have insurance and stock trading units under its umbrella. Profits from its nonbanking business account for a mere 10 percent of the total.

During a conference call for the group’s third-quarter results in late October, Woori Chief Financial Officer Lee Sung-wook hinted at a potential M&A deal with a brokerage firm.

“The area that I see we could create synergy with is securities. Currently, there are not many security firms available to buy, but we are considering various ways for acquisition. We will have enough cash to purchase a midsized brokerage firm,” he said.

In 2020, the group closed a deal to acquire Aju Capital and Aju Savings Bank after taking over Tongyang Asset Management and ABL Global Asset Management in 2019.

By Park Han-na (hnpark@heraldcorp.com)