Welcome, KB Savings Bank Automobile Parts Loan Fraud Discovered...Financial Supervisory Service Inspecting

It has been revealed that financial fraud involving accounts receivable-backed loans for automobile parts occurred at Welcome Savings Bank and KB Savings Bank, prompting an ongoing inspection by the Financial Supervisory Service. Attention is focused on whether this will lead to institutional sanctions following the conclusion of the police investigation.

The Financial Supervisory Service headquarters in Yeouido, Seoul. Financial Supervisory Service

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According to financial authorities and the financial sector on April 30, Welcome Savings Bank and KB Savings Bank detected signs of fraud in their automobile parts accounts receivable-backed lending at the end of last year and responded accordingly.

Welcome Savings Bank became aware of the incident in November last year, voluntarily reported it to the Financial Supervisory Service, and suspended all related products. KB Savings Bank also disclosed a loss of 4.5 billion won related to the case in January.

Automobile parts companies and others involved in the fraud exploited a win-win financial product that provided working capital loans to repair shops or parts suppliers.

When a company receives a repair cost estimate for parts through the Insurance Development Institute’s vehicle repair cost claim and loss assessment system (AOS), the savings bank treats the estimate as an account receivable and issues a loan. Upon completion of the repair, the loan is repaid using insurance payouts from the insurer.

The fraudulent companies created false repair cost estimates through the AOS system and obtained loans from the savings banks. Some companies also established multiple special purpose companies (SPCs) to circumvent the single borrower limit regulations stipulated by the Savings Bank Act.

The total amount of cumulative loans related to this fraud is estimated to be around 300 billion won, with about 200 billion won recovered. The industry estimates the damage to be approximately 100 billion won.

According to the financial sector, after the police investigation, the Financial Supervisory Service may conduct additional reviews to determine whether the relevant savings banks’ loan processes and internal control systems functioned properly, and whether, as publicly disclosed, employees were genuinely unaware and deceived by the fraud. If violations are identified, this could lead to sanctions against the institutions and related executives and employees.

The Financial Supervisory Service completed its on-site inspection of Welcome Savings Bank in November last year, and is currently inspecting KB Savings Bank.

A comprehensive review of automobile parts accounts receivable-backed loans was conducted across the entire savings bank sector, but no additional cases of fraudulent loans were found beyond Welcome Savings Bank and KB Savings Bank.

The police are currently investigating the parts companies and related individuals suspected of fraud.

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