It has been revealed that more than 230 billion won in improper loans were executed at Woori Bank over the past five years. Of this, 73 billion won involved improper loans related to the relatives of former Woori Financial Group Chairman Son Tae-sung.
Woori Financial Group and Woori Bank significantly relaxed the disciplinary actions concerning loan-related employees and neglected internal controls, including lax loan review management. During the decision-making process for the merger and acquisition (M&A) of Tongyang and ABL Life, procedural issues were also identified due to a failure to adhere to internal regulations.
On the morning of the 4th, Financial Supervisory Service (FSS) Head Lee Bok-hyeon held a briefing on the results of the 2024 Financial Group and Bank inspections at the FSS headquarters in Yeouido, Seoul, announcing the regular inspection results for Woori Financial Group and Woori Bank.
Lee noted, "Large-scale financial incidents have persisted, raising doubts about the basic ethical awareness and capabilities of financial institutions," adding, "The inadequate internal controls have become a chronic problem not limited to specific financial firms but evident across the financial sector."
◇ More improper loans occurred during Yim Jong-ryong's term
Last year, the FSS identified 101 cases of improper loans at Woori Bank during its inspection, amounting to 233.4 billion won. Of this, 73 billion won was related to improper loans involving former Chairman Son's relatives. Previously, the FSS announced that the scale of improper loans involving Son's relatives was 35 billion won; however, an additional 38 billion won was found during subsequent inspections.
The improper loans related to Son's relatives were more significant during Yim Jong-ryong's tenure (45.1 billion won) than during Son's term (27.9 billion won). Of the 73 billion won in improper loans involving Son's relatives, 33.8 billion won has been classified as non-performing loans.
Additionally, improper loans involving current and former high-ranking officials amounted to 73 billion won. For instance, a deputy governor of Woori Bank introduced a loan broker who attended the same church to a subordinate, who then processed improper loans amounting to 1.8 billion won while receiving 38 million won in his wife’s account.
The FSS highlighted the negligence in loan reviews and post-management by current and former employees of Woori Bank as the root cause of the ongoing improper loans. According to FSS explanations, 27 former and current Woori Bank employees, including a former deputy governor, focused on short-term results, neglecting loan reviews, which led to 160.4 billion won in improper loans. Among these, 122.9 billion won (76.6%) have turned into non-performing loans.
◇ The internal control culture fostered by Son Tae-sung... neglected by the current management
The FSS pointed out that a 'cronyism culture' within Woori Financial Group has exacerbated financial accidents. During former Chairman Son's term at Woori Bank, the disciplinary standards related to loan practices were significantly relaxed compared to other banks. These standards have not changed to this day, resulting in a situation where many bank employees involved in loan incidents faced only light disciplinary actions.
Woori Bank recognized the fact of improper loans involving Son's relatives but did not report it to financial authorities for almost five months. The FSS explained that not only Woori Bank but several banks failed to effectively activate their whistleblower systems, leading to numerous cases where financial accidents were discovered but not reported to regulatory bodies.
◇ Ignored procedures for the acquisition of Tongyang and ABL Life
The FSS indicated that there were issues in the acquisition process of Tongyang Life and ABL Life last year by Woori Financial Group. According to internal regulations, when pursuing M&A, the Risk Management Committee within the board should conduct prior reviews, and the results of those reviews must be reflected in the board’s decision-making.
However, Chairman Yim presented the acquisition agenda for Tongyang and ABL Life to the board before holding the Risk Management Committee. Additionally, on the day the stock purchase agreement for Tongyang and ABL Life was signed, the Risk Management Committee and the board were convened 20 minutes apart, meaning the results of the Risk Management Committee’s review were not included in the board's agenda.
Woori Financial Group included a clause in the stock purchase contract with multi-national insurance that states, 'If financial authorities do not approve the incorporation of subsidiaries, the down payment will be forfeited.' This means that if financial authorities do not permit the acquisition of Woori Financial Group's insurance firms, the group would not be able to retrieve the down payment made to the multi-national insurance. Woori Financial Group paid approximately 155 billion won, 10% of the acquisition price of 1.5493 trillion won, as a down payment.
Woori Financial Group did not discuss including this clause in the contract at an official board meeting. The FSS pointed out that not discussing major aspects of the M&A contract at the board level posed an issue.
Lee stated, "The board has been restricted in its fundamental function of overseeing and monitoring management as it has not been properly provided with the information necessary for important decisions like mergers and acquisitions."
◇ Controversy over support for Woori Financial Group F&I
Concerns were also raised regarding Woori Bank indirectly supporting high-risk businesses by loaning to its affiliate Woori Financial Group F&I. Woori Financial Group F&I, an investor in non-performing loans (NPL), borrowed 350 billion won from Woori Bank, using the subordinated debt of a special purpose company (SPC) it effectively controls as collateral. Woori Financial Group F&I then used the loan to acquire NPLs from the SPC, inflating its asset scale through this circular structure. The FSS viewed this behavior as a workaround to avoid the financial holding company law intended to prevent the transfer of non-performing assets.
FSS Deputy Governor Park Chung-hyeon noted, "In essence, we are treating Woori F&I and the SPC as the same borrower," adding, "We plan to seek a legal interpretation from the Financial Services Commission regarding the potential violation of the law."
The FSS also uncovered that a derivatives dealer at Woori Bank concealed and hid losses incurred from equity-linked securities (ELS) due to the sharp decline in the Hong Kong H Index. The losses concealed by the dealer amount to 100 billion won.
Based on this inspection result, the FSS plans to refine future supervisory directions and initiate sanction procedures. Deputy Governor Park stated, "Some aspects of the inspection results require sanctions, while others must be reflected in the management evaluation," noting, "The sanctions could take a long time due to legal consultations and interpretations from the Financial Services Commission."