Embezzlement cases at banks cast doubt over internal controls

A series of embezzlement and breach of trust cases among several banks has sparked concern about the financial sector's internal control capabilities.

The KB Kookmin Bank logo is shown at the bank's head office in western Seoul on March 25. [YONHAP]

The discovery of a series of embezzlement and breach of trust cases among local banks has cast doubt over the financial sector’s internal control capabilities.

KB Kookmin Bank issued a public notice on its website Tuesday that it had uncovered two breaches of trust through internal investigations.

From August 2020 to March this year, an employee at a KB branch in Daegu intentionally overstated borrowers’ income levels to increase the lines of credit for loan applications by a total of 11.14 billion won ($8.2 million) for a better performance review.

Another incident occurred from Feb. 2022 to Dec. 2023 at a branch in Yongin, Gyeonggi, where rent to interest (RTI) ratios of commercial properties belonging to a group of borrowers were overstated, leading to the issuance of mortgage loans worth 27.2 billion won. The RTI ratio is used as a criterion to assess the solvency of commercial real estate owners.

The incidents had been reported to the Financial Supervisory Service (FSS) in early April, according to KB Kookmin Bank. The financial regulator has launched on-site investigations to look into the cases.

On March 13, the bank reported another breach of trust at a branch in Anyang, Gyeonggi, in which collateral assets for loans worth 10.4 billion won were overvalued.

The FSS recently slapped a fine of 24 million won on the Korea Investment Savings Bank for an embezzlement case that occurred last year. One executive received a warning and two received cautions by the financial watchdog.

An employee at the bank falsified funds disbursement requests from last April to December to embezzle a total of 1.54 billion won from customer accounts. The Korea Investment Savings Bank was also accused of overestimating the solvency of 15 loans, resulting in a shortfall of 4.28 billion won in bad debt allowances.

Moreover, the FSS said Monday that it imposed a fine of 524 million won on OK Saving Bank for violating its obligation to keep its financial information accurate and up-to-date. According to the FSS, the bank prematurely passed the overdue loan information of 4,344 borrowers who filed for personal insolvency proceedings to credit reporting agencies.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]