The percentage of shares held by foreign investors in Korean banks is fairly high. The foreign ownership of KB Financial Group is 77%, while those of Shinhan Financial Group and Hana Financial Group are 61% and 70%, respectively. In contrast, the foreign ownership of Woori Financial Group is the lowest at 43%. 

Despite the relatively lower valuation, it seems that the foreign investors refrain from buying Woori Financial shares because it has the track record of having never ending “one-off” credit events. Investors call the bank ‘Worry Bank’ because once you invest you would have to worry about the position constantly.

Because the bank was controlled by the government after the 1997 Asian Financial Crisis, the corporate lending practice of Woori was not completely free from politics. For that reason, the credit cost has always been above the industry average. Whenever there was a bankruptcy by a large corporation, Woori always had the exposure. During the real estate market downturn, PF-related losses always occurred. Woori even managed to take a sizable loss on the US subprime mortgage debacle. From 2004 to 2007, investment losses in CDOs and CDSs alone exceeded 1.5 trillion won.

Whenever Woori takes sizable losses, the bank always notes they are ‘one-off’ events. But it seems that the market does not consider these losses one-offs given the heavy discount compared to its peers.   

The recent embezzlement incident worth 10 billion won is not the first time. In general, such embezzlement cases would be considered to be ‘one-off’ events. However, in the case of Woori Bank, it may be a structural issue. 

Just two years ago, an embezzlement of 70 billion won occurred at Woori Bank. And last year, an embezzlement of 100 billion won occurred at Gyongnam Bank. Gyeongnam Bank was a subsidiary of Woori until 2014. We could assume that Gyeongnam Bank carries the Woori DNA. Essentially, embezzlement has become an annual event. 

The bank noted that the internal control system is in place. But we should note that the system is operated by the people. And the workers are not too focused on making sure that the internal controls are operating as they should. Given the government influence over the bank, the workers may focus more on playing the politics than performance.    

The Woori Financial's union opposed the former Financial Services Commission Chairman Lim Jong-ryong's inauguration as chairman, saying, "Woori Financial is not a playground for Morfia old boys." “Mofia” is the word Koreans use to describe a closed group of finance bureaucrats who have significant influence over financial institutions. 

The harmful effects of government controlled finance are not limited to irrational decisions by the management. The organizational culture will become political, and performance will inevitably take a backseat. Until Woori Financial is completely free from the government influence we may have to ‘worry’ about Woori continuously.