Woori Financial Group headquarters in Seoul / Yonhap

A large-scale loan scandal at Woori Financial Group will have long-lasting effects on its management, disrupting its moves to diversify its business portfolio and boost profitability, experts said Sunday.

The most pressing concern is whether the group can smoothly complete its acquisition of Tongyang Life and ABL Life to diversify beyond banking, they said.

"Woori Financial's acquisition of Tongyang Life and ABL Life may face delays if regulators downgrade its management rating," Rena Kwok, senior credit analyst at Bloomberg Intelligence, said. "This could hinder Woori's efforts to narrow its medium-term profit gap with peers, given its smaller non-bank contribution to profit when interest rates fall."

She referred to a recent Financial Supervisory Service (FSS) briefing on Feb. 4, which revealed that Woori Bank had issued 101 improper loans totaling 233.4 billion won ($160.1 million) to corporations and individual businesses linked to former Woori Financial Chairman Son Tae-seung.

The FSS pledged to factor these findings into Woori's upcoming management assessment rating. While the evaluation process typically takes about a year and a half, the FSS aims to shorten it to six months. FSS Governor Lee Bok-hyun emphasized that he has "no intention of rewarding inadequate internal controls."

In January, Woori submitted an acquisition approval request for Tongyang Life and ABL Life to the Financial Services Commission (FSC), which will base its final decision on the ongoing FSS review.

The acquisition is a key part of Woori's strategy to diversify its revenue stream, which remains heavily reliant on banking. In its fourth-quarter 2024 earnings, Woori Bank accounted for approximately 98 percent of Woori Financial Group's total net profit of 3.08 trillion won.

If Woori's rating drops to Level 3 or lower — an outcome many market watchers consider likely — its acquisition of the two insurance companies will face hurdles.

Regulations require financial holding groups to maintain ratings at Level 2 or higher to acquire a subsidiary. While the FSC may grant an exception, it could come with conditions such as capital increases or resolving nonperforming assets, adding further strain on management.

Failure to secure approval would also have financial consequences. In the worst-case scenario, Woori stands to lose approximately 150 billion won in deposits paid to China's Dajia Insurance Group. It would also miss a crucial opportunity to expand its non-banking operations, which are vital in the central bank's rate-cut cycle.

Woori also needs to address market concerns over a potential dividend cut following the acquisition. Woori's common equity tier 1 (CET1) ratio stands at 12.08 percent — the lowest among the five major holding companies, and could drop further if the 1.5 trillion won acquisition proceeds.

CET1 represents core capital in a bank's structure, and major banks have pledged to raise their ratios to boost dividends under the government's Corporate Value-up Program.

Despite these challenges, Woori remains confident in the deal's long-term benefits.

"The group's reliance on its banking unit could decrease to around 80 percent if we acquire the two life insurers," Woori CFO Lee Sung-wook said Friday during the group's fourth-quarter earnings conference call.