The Korea Herald

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Banks face fines for irregular lending cases

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Published : Oct. 9, 2011 - 14:59

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Customers pressed to buy financial products in return for loans


The Financial Supervisory Service is set to levy penalties on several banks for habitual irregular loan issuances which burdened borrowers.

The banks to face sanctions will likely include Industrial Bank of Korea, according to recent remarks by FSS Gov. Kwon Hyouk-se.

During the National Assembly’s audit on financial regulators on Friday, chief supervisor Kwon said that about 300 unfair lending cases were uncovered at the state-run IBK.

“Between mid-July and mid-September, we probed irregular lending allegations of eight banks including Industrial Bank of Korea,” he said. “We plan to take stern action (against rule-violators).”

IBK has been suspected of forcing many small- and mid-sized enterprises or individual borrowers to buy financial products in exchange for receiving loans.

The FSS looked into loan-related documents by dispatching a group of inspectors to the headquarters of IBK and Shinhan Bank in July, and Hana Bank in August.

KB Kookmin Bank, which was under regulatory probe in May, is expected to be another one, subject to sanctions for similar practices.

A number of retail customers in the banking sector were urged to purchase financial products such as deposits, insurance or credit cards, in return for having their loan applications approved.

Aside from imposing fines, the FSS is expected to warn or caution the rule-violators simultaneously.

Meanwhile, a ruling party lawmaker alleged that the Korea Development Bank also engaged in similar practices.

Rep. Lee Sung-hun of the Grand National Party said the state-run bank saw deposits from corporate customers surge by 4 trillion won in two months ― to 12 trillion won ($10 billion) in August from 8 trillion won in June.

During the parliamentary audit on KDB last week, he said the KDB was suspected of forcing corporate borrowers to buy deposit products on condition of issuing loans to them.

Citing data at the Board of Audit and inspection, the lawmaker said 11 out of the 59 KDB branches engaged in the practices.

BAI data showed that 27 irregular cases, totaling 24.9 billion won in deposits, were uncovered at the bank over the past few years.

Concerning the speculation, KDB Financial Group chairman Kang Man-soo said the bank gains a large amount of deposits from corporate customers “customarily.”

FSS Gov. Kwon has continued to express his willingness to take tough disciplinary measures against the practices of several lenders.

He has instructed the regulatory staff to bolster efforts to protect consumer rights by enhancing the crackdown on irregular loan issuances.

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