The Financial Supervisory Service said Wednesday that it has uncovered two savings banks ― Jeil and Ace ― which have issued irregular loans to ailing builders over the past few years.

The regulator filed complaints the two lenders and nine other banks in the secondary banking industry with the prosecution for improper business practices.

The 11 lenders have been suspected of engaging in lending improprieties or fabricating their financial statements.

In case of Ace and Jeil, which were suspended for poor financial status by the FSS, had engaged in lending irregularities of more than 600 billion won ($540 million).

Since 2002 Ace Mutual Savings Bank and Jeil Savings Bank have issued loans of 450 billion won and 160 billion won, respectively, to builders in charge of construction of a bus terminal in Ilsan, according to the FSS.

Though the construction project had been hampered by a variety of fraudulent activities, the two banks allegedly continued to push for lending to the builders, which exceeded regulatory loan ceiling.

“Jeil and Ace had originally made loans 30 billion won. But builders failed to pay their interest amid sluggish process of construction,” an FSS official said.

Since then the two banks instructed the builders to pay the overdue interest by lending additional money, he said.

But the savings banks argued that the regulator connived at the irregular lending amid a number of complaints among those damaged by then delayed construction.

They insisted that the FSS had said the practice was in a tolerable territory.

But an FSS official said it is illogical that the regulator induced financial companies to unauthorized lending.

He assumed that regulatory officials had called for them to resolve a feud involving complaints among victims from the delayed construction.

On Sunday, the FSS suspended the two banks and five other savings banks for failing to raise their BIS capital adequacy ratios above 1 percent.

By Kim Yon-se (kys@heraldcorp.com)