View of Industrial Bank of Korea. /Courtesy of Industrial Bank of Korea

The Financial Supervisory Service has begun taking action against the Industrial Bank of Korea regarding the '882 billion won improper loan' incident.

According to the financial sector on the 25th, the FSS sent an inspection opinion letter to the Industrial Bank of Korea earlier this month. It has been over five months since the completion of an ad hoc inspection on the Industrial Bank of Korea in February. The inspection opinion letter serves as a sort of 'sanction warning.' The opinion letter details illegal or improper activities identified during the inspection process, and the severity of sanctions will be determined based on this.

The FSS is reportedly considering imposing serious sanctions at or above 'institutional warnings.' The sanctions from the financial authorities are categorized into ▲ license revocation ▲ business suspension ▲ corrective orders ▲ institutional warnings ▲ institutional advisories, with institutional warnings classified as serious sanctions that restrict approvals for new business ventures. An FSS official noted, 'Given the seriousness of the matter, we are keeping in mind the possibility of severe sanctions,' adding, 'However, after considering explanations, the severity of sanctions may be reduced, and we should also await the results of the prosecution's investigation.'

There are also forecasts that some 'business suspension' sanctions, which are more severe than institutional warnings, may be applied. Earlier, BNK Kyongnam Bank faced a six-month business suspension on its real estate project financing after a 350 billion won embezzlement incident.

The Industrial Bank of Korea is currently preparing a response letter, which serves as an 'official explanation.' Typically, a response letter must be submitted within 2 to 3 weeks after receiving the inspection opinion letter, but due to the significant number of employees involved in this case, time is required to verify facts, provide explanations, and raise objections from them. The FSS will create a proposed sanction plan after receiving the response letter, which will then be finalized through deliberations by a sanctions review committee, the Securities and Futures Commission, and the Financial Services Commission.

Kim, a former employee of Industrial Bank of Korea, who is facing allegations of unfair loans amounting to 88.2 billion won, shields his face with both hands while attending a pre-arrest questioning at the Seoul Central District Court in Seocho-gu, Seoul on the 11th of last month. /Courtesy of News1

Previously, the FSS reported the improper loan allegations amounting to 882 billion won involving former and current employees of the Industrial Bank of Korea to the prosecution for investigation. A retired employee surnamed Kim, who worked at the Industrial Bank of Korea for 14 years, allegedly engaged in improper loans 51 times over seven years from June 2017 while operating real estate brokerage offices and a law office under a borrowed name. He colluded with current executives and employees, whom he had built connections with through family, colleagues, or social gatherings, to fraudulently complete loan-related documents and evidence regarding their financial capabilities. The FSS stated that during the inspection process, it confirmed indications that the Industrial Bank of Korea had minimized reports of the incident as an isolated case at individual branches and deleted internal investigation materials and messenger records to obstruct the investigation.

Meanwhile, due to the fallout from the improper loans, the Industrial Bank of Korea received a B rating in last year's government policy bank performance evaluation. This is the first time the Industrial Bank of Korea has received a B rating. It received an S rating in 2012 and 2021, and an A rating in the other years. As a result, performance bonuses for employees will be reduced to 150% of their base salary. An A rating corresponds to 180% of the base salary.

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