Woori’s billion-dollar insurance buys will have little impact on banking arm

Woori Bank is expected to maintain its asset quality, although NIM may narrow.

Woori Bank is not expected to be affected by its parent company’s $1.16b insurance acquisitions.

On 28 August, Woori Financial Group announced that it had signed a deal to acquire two insurers: Tongyang Life Insurance and ABL Life Insurance. 

Most of the funds to be used will come from Woori FG’s cash holdings, without relying on dividends upstream from Woori Bank, which meant that financial impact on the bank should be limited, said Moody's Ratings.

“Longer term, we also do not expect rising dividend upstream burden for Woori Bank, because post the acquisition, Woori FG will recognize gain on bargain purchase from acquiring the entities at below book value which will be accretive to its own capitalization,” the ratings agency said in it latest ratings report on Woori Bank, where it graded the bank A1 for its foreign currency bank deposits and senior unsecured debt ratings.

“The insurance entities are small with good capitalization reducing the need for Woori FG to rely on Woori Bank's capital to support weaker credit subsidiaries,” Moody’s said.

Woori Bank in itself should maintain stable asset quality, good capital adequacy, good profitability and stable funding, according to Moody’s

However, liquidity is weak and credit costs are rising.

Its loans to smaller businesses have reportedly shown signs of asset quality association, resulting in rise of credit costs. 

Net interest margins (NIM) is further expected to narrow from rising competition for corporate loans. 

Net income to tangible assets is expected to decline to around 0.6% in 2024.

On a more positive note, funding is supported by “a granular and diverse deposit base” and its market funds to tangible banking assets ratio is likely to remain low at around 10%.

Moody’s expects the government to provide support to Woori Bank, given its position in the domestic market. Woori Bank makes up 11.7% of the market share of the total system assets as of 30 June 2024.

Korean authorities also have a strong capacity to provide support, and a track record of bailing out distressed banks, Moody’s said.