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| Shinhan Financial Group Chairman Cho Yong-Byoung |
Korea's financial industry is expected to see a wave of mergers and acquisitions (M&As) in 2019 as major financial groups are aggressively seeking business expansion to strengthen the non-banking sector and diversify revenue sources.
There are two key factors that are speeding up the move ― the launch of Woori Financial Group and Orange Life being put under the umbrella of Shinhan Financial Group.
These two events have combined to unnerve the heads of financial groups all seeking to become leading players in the rapidly changing industry.
Following an approval from the Financial Services Commission (FSC) to acquire Orange Life Insurance Jan. 16, Shinhan Financial Group Chairman Cho Yong-Byoung is expected to pursue more deals in the securities industry as its brokerage arm Shinhan Investment is considered a minor player.
The acquisition of the sixth-largest life insurance with 31.5 trillion won capital ($27.9 billion) formerly known as ING Life will increase Shinhan's asset to 490 trillion won, making it become the largest financial group by asset, overtaking KB Financial Group with 477 trillion won.
"Orange Life, the 14th subsidiary of the group, will help create a synergy effect with its existing subsidiary Shinhan Life Insurance. The group portfolio has been also strengthened by reducing reliance on interest income," a Shinhan official said.
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| KB Financial Group Chairman Yoon Jong-kyoo |
The recent upset will accelerate the group's ongoing efforts to strengthen its nonbanking businesses, with priorities put on moves that further increase overseas presence and profitability.
Yoon during his first three-year term between November 2014 and November 2017 was able to increase group assets through the acquisitions of Hyundai Securities and LIG Insurance, a non-life insurance. But his earlier move to acquire then ING failed in 2012.
Given both Cho and Yoon are in the second year of their three year terms, more aggressive moves may follow to prove themselves as competent leaders.
Another factor that will determine the top is upcoming competition over which would acquire Lotte's three subsidiaries ― Lotte Card, Lotte Insurance and Lotte Capital ― put up for sale. They each have 12.9 trillion won, 13.4 trillion won and 7.5 trillion won in assets, respectively.
KB said the group is closely monitoring the situation while remaining open to various business opportunities including M&As.
"We are in the process of strengthening capabilities and management of our existing subsidiaries, as stressed by Chairman Yoon at the New Year's address," a KB official said.
He said the group would not be pursuing the acquisition of Lotte's three subsidiaries.
"We are not considering acquiring Lotte subsidiaries. But we do have plans to acquire life insurers as we are aware of market consensus that our group is weak in life insurance. We will not rush into expanding business but bide our time until opportunity comes our way."
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| Woori Financial Group Chairman and Woori Bank CEO Sohn Tae-seung |
At a ceremony to launch a holding company, Jan. 14, Sohn reiterated that he will push for M&As in the non-banking sector to better compete with other financial groups.
Woori under the leadership of Sohn has already diversified its business portfolio by increasing capital held by non-bank subsidiaries that will handle asset management, securities, insurance and real estate investment trusts.
The financial groups will continue to vie to secure the top post, with the competition expected to only intensify in the coming months, according to analysts.
"Given the complex dynamics among the financial groups in the market, they will find various ways to maximize synergy," said an analyst at a Seoul-based securities firm who refused to be named.
