Unfair Loans Worth 400 Billion Won at Woori, Kookmin, and NongHyup Banks... "Including Bribery"

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The amount of improper loans related to the relatives of the former chairman of Woori Financial Group has significantly increased to 73 billion KRW. This is about twice the previously detected amount of 35 billion KRW. Including this, the total amount of improper loans by Woori Bank reached 233.4 billion KRW, which is about three times higher than KB Kookmin Bank (89.2 billion KRW) and NH Nonghyup Bank (64.9 billion KRW).

On the morning of the 4th, the Financial Supervisory Service (FSS) announced these findings at Yeouido, Seoul, in the '2024 Financial Holding Companies and Banks Major Inspection Results.'

The FSS had previously detected suspicious loans amounting to 35 billion KRW related to the former chairman’s relatives at Woori Financial Group last year. The FSS explained that during the year-end regular inspection, an additional 38 billion KRW of improper loans involving multiple executives and employees was uncovered.

Of the improper loans related to the former chairman’s relatives (73 billion KRW), 61.8%, or 45.1 billion KRW, were issued after the current management took office (March 2023). Among the improper loans (73 billion KRW), 46.3%, or 33.8 billion KRW, have become non-performing.

Park Chung-hyun, Deputy Director of the Banking Division at the FSS, stated, "Considering that 84.6% of the 35 billion KRW of improper loans handled by the previous management became non-performing, the 32.8 billion KRW of improper loans currently classified as normal by the current management are also highly likely to become non-performing in the future."

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The FSS pointed out that internal controls at the financial holding company level were not effectively functioning during the prolonged period improper loans were issued. While handling facility fund loans, dishonored checks were accepted as evidence of interim payments already transacted, and the authenticity of documents submitted by customers, such as contracts, was negligently verified.

When assessing repayment ability, consultations were conducted with third parties instead of the borrower’s representative, violating many internal regulations. It was also confirmed that the regional head who led the credit issuance was re-employed by a borrower company related to the former chairman’s relatives after retirement.

The FSS’s regular inspection revealed that improper loans were widespread within Woori Bank. Twenty-seven current and former senior executives handled a total of 160.4 billion KRW in improper loans. They were found to have neglected loan screening and post-management for short-term performance. Of the total improper loans of 160.4 billion KRW, 76.6%, or 122.9 billion KRW, became non-performing. Notably, 61.5% of the total improper loans, amounting to 98.7 billion KRW, were issued after the current management took office.

KB Kookmin Bank issued improper loans amounting to 89.2 billion KRW. There were also indications of receiving bribes and entertainment related to some loans. A team leader assisted developers and brokers with working loans by obtaining false sales contracts and related documents to select fictitious borrowers eligible for loans and encouraged changing to industries where loans were easier to obtain.

NH Nonghyup Bank issued improper loans totaling 64.9 billion KRW, and similarly, there were indications of receiving bribes amounting to 130 million KRW from borrowers and others for some loans. Cases were uncovered where branch managers and team leaders colluded with brokers and borrowers to inflate appraisal values based on false sales contracts. Additionally, to evade credit limits and approval criteria, loans were approved by splitting them under multiple fictitious borrower names.

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The FSS cited Woori Bank’s 'lenient internal culture' as a cause of improper loans. The former chairman significantly relaxed disciplinary standards related to credit during his tenure as Woori Bank president. According to Woori Bank’s internal regulations, if the responsible amount is between 1 billion and 2 billion KRW (500 million to 1 billion KRW for non-listed companies), the penalty is a 'reprimand.' Kookmin Bank has stricter standards with a responsible amount of '20 million KRW or more' and disciplinary levels starting from 'salary reduction or higher.'

As is known, rewards and promotions were granted to those scheduled for discipline without reasonable criteria before sanctions were completed. Despite handling improper loans related to the former chairman’s relatives, promotions were given, undermining fairness in personnel management.

In particular, Woori Bank did not report the improper loans related to the former chairman’s relatives to financial authorities for five months despite being aware of the allegations. As a result, FSS inspections and prosecution investigations were delayed.

NH Nonghyup Bank also had inadequate financial accident reporting systems. Due to a rigid organizational culture, internal whistleblowing systems were not activated, and cases of failure to report to financial authorities were confirmed.

Kookmin Bank’s audit function within branches was virtually ineffective. The internal audit cycle for branches was fixed at three years. Despite frequent financial accidents in individual branch credit approvals recently, there were no ad hoc or special audits. Moreover, audit periods lasted only 3 to 4 business days.

Deputy Director Park emphasized, "It is difficult to attribute the cause of the incidents solely to personal misconduct by some employees. We conducted this briefing with an urgent mindset to quickly share the problems across the financial sector and urge swift and thorough reform through inspections."

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Alongside the FSS inspection announcement, the financial industry’s attention is focused on Woori Bank’s acquisition and merger of Dongyang and ABL Life Insurance. This is because the approval of the insurance company acquisition by financial authorities may vary depending on the management evaluation results derived from the regular inspection. The management evaluation is an objective indicator used by the FSS to assess the bank’s management status. It evaluates various items such as capital soundness and adequacy, management, profitability, internal control, and risk management. If the overall rating after the management evaluation is below grade 3, restrictions on subsidiary acquisitions or overseas expansion apply.

The FSS stated that disciplinary actions related to improper loans and the management evaluation affecting the insurance company acquisition will be conducted independently. The improper loan inspection results may take longer than expected because legal issues related to supervisory regulations require interpretation from the Financial Services Commission. Since this announcement is an interim briefing, the actual disciplinary results are expected no earlier than the end of March. Furthermore, if the disciplinary action is severe, the case will be forwarded to the Financial Services Commission. It is expected to take at least another 1 to 2 months for the full commission meeting to decide the final sanctions.

Instead, the management evaluation for Woori Bank will be conducted promptly. Deputy Director Park said, "Woori Financial Group submitted an application related to the insurance company acquisition on January 15 and is currently under review. We plan to handle the management evaluation as quickly as possible through a two-track process."

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