Gyeongnam Bank's '56.2 Billion KRW PF Loan Embezzlement Incident'... Financial Supervisory Service On-Site Inspection (Comprehensive)

Repaid Principal and Interest from Defaulted PF Loans Transferred to Family Accounts

A project financing (PF) loan embezzlement incident amounting to 56.2 billion KRW occurred at Gyeongnam Bank. According to the Financial Supervisory Service (FSS) on the 2nd, the FSS confirmed the allegations and launched an on-site inspection.

Gyeongnam Bank recognized the embezzlement allegation of 7.79 billion KRW from PF loan repayment funds during an internal audit of an employee in the investment finance department (the suspect) on the 20th of last month and reported it to the FSS. Subsequently, the FSS began an emergency on-site inspection on the 21st of last month and additionally confirmed embezzlement and misappropriation allegations amounting to 48.4 billion KRW by this employee.

The employee is suspected of embezzling and misappropriating a total of 56.2 billion KRW over approximately 15 years, from December 2007 to April 2023, while handling real estate PF operations by arbitrarily transferring loan funds to accounts under family members’ names or forging loan documents.

From August 2016 to October 2017, the employee embezzled 7.79 billion KRW by transferring principal and interest payments of already non-performing PF loans to accounts of third parties such as family members.

In February 2018, the employee processed repayment of 2.91 billion KRW from the embezzled funds to conceal the embezzlement, leaving an unrecovered amount of 4.88 billion KRW.

Later, in July 2021 and July 2022, the employee forged withdrawal requests from the PF project company and transferred PF loan funds handled by Gyeongnam Bank to a corporate account represented by a family member, embezzling a total of 32.6 billion KRW in two instances.

In May of last year, the employee misappropriated 15.8 billion KRW of PF loan repayment funds by not processing the repayment and instead using them for repayment of other PF loans under their responsibility.

The FSS has currently deployed an inspection team to the investment finance department of Gyeongnam Bank to investigate the circumstances of the incident and whether additional embezzlement occurred.

The FSS believes that basic internal controls likely failed due to exclusion of the rotation principle for long-term employees in specific bank departments, lack of job segregation for high-risk tasks, and insufficient checks on significant matters such as large deposits and withdrawals.

Gyeongnam Bank has filed a criminal complaint against the suspect regarding the embezzlement allegations.

An FSS official stated, "We will proceed with the inspection as swiftly as possible to ascertain the exact facts and circumstances of the incident," adding, "Any illegal or improper matters confirmed through the inspection will be dealt with strictly under the zero-tolerance principle."

This content was produced with the assistance of AI translation services.