SEOUL – The Financial Supervisory Service (FSS) of South Korea has revealed a staggering 387.5 billion won ($295 million USD) in illegal loans at three major banks: Woori Bank, KB Kookmin Bank, and NH Nonghyup Bank. The illicit activities were uncovered during a recent regular inspection.

The scale of the wrongdoing is alarming, with Woori Bank facing the largest share of responsibility. The bank's illegal lending related to relatives of former Woori Financial Group Chairman Sohn Tae-seung has doubled from previous findings, now reaching a total of 73 billion won ($55 million USD).

Even excluding the newly discovered irregularities, the total reported financial accidents across the banking sector from January to September of last year amounted to 259.8 billion won ($198 million USD), doubling the amount from the same period the previous year.

FSS Governor Lee Bok-hyeon expressed serious concerns about the findings, stating, "The outdated governance structure of the banking sector and severe deficiencies in internal controls, including large-scale financial accidents, have been reconfirmed." He further criticized the banks, stating, "Executives and employees treated bank resources as tools for their own personal gain or that of specific groups, engaging in illegal activities such as illicit lending and irregular business practices."

Woori Bank's Troubled Dealings

The FSS inspection uncovered a total of 101 instances of suspected illegal lending at Woori Bank, amounting to 233.4 billion won ($178 million USD). Among these, the loans connected to Chairman Sohn's relatives make up a significant portion. What's more, a substantial 45.1 billion won ($34 million USD) of these loans were made after the current Chairman Lim Jong-yong took office in March 2023. Currently, 46.3% of the loans related to Sohn, or 33.8 billion won ($25 million USD), have become non-performing.

In addition, high-ranking Woori Bank officials, including current and former branch managers, were found to have neglected loan screening and post-management procedures in pursuit of short-term gains, resulting in 160.4 billion won ($122 million USD) in improper loans. Over 60% of these loans were issued after Chairman Lim's inauguration, and a significant 76.6% have already soured.

Other Banks Implicated

Similar issues were discovered at KB Kookmin Bank and NH Nonghyup Bank, where branch managers and team leaders colluded with brokers to facilitate illegal loans in exchange for bribes and other favors.

Systemic Issues and Call for Reform

The FSS emphasized that the root causes of these repeated financial accidents lie in management practices that prioritize short-term results, a disregard for soundness and risk management, and a lenient organizational culture with lenient disciplinary measures.

The FSS plans to take strict measures against the banks and individuals involved in the illegal activities and will require all financial institutions to submit plans for internal reform to prevent future occurrences.

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