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The banking sector is shaken by false documents. From major commercial banks to state-owned banks, they are exposed to financial incidents amounting to hundreds of millions of won due to the inability to filter out false documents during the loan review process. Although banking operations are becoming computerized and internal controls are getting stricter, an environment that perfectly blocks false documents has not been established. Experts emphasize the importance of developing a stringent system to quickly detect false documents while also monitoring and supervising individual bank employees.

According to financial authorities on the 25th, Hana Bank disclosed on the 23rd that a financial incident involving about 7.4 billion won had occurred. It was revealed that a Hana Bank branch employee accepted money from a transaction partner and granted a larger loan amount based on false documents. The improper loan executed by this employee amounted to 7,470 million won. The Financial Supervisory Service has been notified of this fact and has begun a periodic inspection of Hana Bank.

Financial incidents caused by false documents have recently been discovered. The Financial Supervisory Service announced last month that an improper loan amounting to 88.2 billion won had occurred at Industrial Bank of Korea over a period of seven years. In the case of Industrial Bank's improper loan, false documents acted as a 'seal' for loan execution. A former employee of Industrial Bank forged loan documentation and own funds related documents, while this former employee's spouse, a current employee, approved the loan, resulting in funds leaking from the bank. It has also been revealed that in a 230 billion won improper loan case involving a relative of former Woori Financial Group Chairman Son Tae-seung, the bank neglected to ascertain the authenticity of the false documents.

The prevailing view in the financial sector is that the improper loans due to false documents cannot be considered merely individual deviations or mistakes of a single branch. While an automated system to inspect false documents is insufficient, banks explain that it creates verification gaps as they cannot check each document individually with staff. Fake documents not issued by a public institution can be automatically filtered out through a data verification process linked to the bank's public system. However, by establishing a paper company to obtain a business registration certificate or intentionally inflating collateral values to acquire appraisal documents, one can deceive the bank's systems as long as they acquire certified documents. At that point, bank employees have no choice but to verify each document's authenticity individually.

However, banks report that it is virtually impossible for team leaders or branch managers to review all documents one by one in actual branch operations. A representative from a commercial bank stated, "It would be ideal for the loan approver at the branch to conduct due diligence on the corporations or at least meet with the corporate representatives to ascertain the authenticity of the documents," but added, "With the workload piling up and limited time to dedicate to a single loan, there are many cases where they rely on subordinate staff to approve the loan."

The Financial Supervisory Service announces its credit process improvement plan on Dec. 26, 2024. /Courtesy of Financial Supervisory Service

The Financial Supervisory Service recognized the recurrence of financial incidents due to false documents and proposed improvement measures last December. It directed the banking sector to include the obligation to verify omissions and errors in key contract terms used in loan evaluations as part of self-regulation. Additionally, it allowed banks to randomly designate appraisers in their external appraisal requests to prevent bank employees from inflating collateral values and creating false documents.

Experts have welcomed the Financial Supervisory Service's improvements. They also emphasized the need to refine an organizational culture where bank employees diligently comply with the system and mutually oversee each other. Jeong Ji-yeol, a professor at Hanyang University Business School, explained, "The development of automated verification systems for false documents and strengthening employee ethics training should be conducted simultaneously," adding that, "Ethics training should not simply involve dull lectures, but rather establish a culture that can immediately prevent the spread of financial incidents through initiatives like encouraging compliance reports."

Seong Soo-yong, a professor at the Korea Financial Education Institute, stated, "It is crucial to create an organizational culture where the internal control system is linked to the interests of individual bank employees," advising that, "Instead of simply aiming for zero financial incidents, we should implement a personnel system that rewards employees who spot financial incidents early by monitoring their colleagues, and penalizes those who fail to seize opportunities, allowing major financial incidents to go unchecked."