IBK, Which Preached Trust, Is a Minefield of Internal Corruption

Audit Board Criticizes Incomplete Financial Support Operations and Loan Handling
Repeated Employee Misconduct Including 'Self-Loans' and 'Receiving Millions in Bribes'

[Asia Economy Reporter Park Sun-mi] It has been revealed that Industrial Bank of Korea (IBK), a government-owned bank dedicated to supporting small and medium-sized enterprises (SMEs), has been repeatedly criticized by the Board of Audit and Inspection for incomplete financial support operations and improper loan handling. Recently, incidents of employees’ misconduct such as 'self-loans' and 'accepting bribes worth tens of millions of won' have surfaced one after another, raising calls for strengthening the internal control system to properly fulfill the role of a government-owned bank.

According to the '2019-2020 IBK Audit Report' provided by the office of Yoon Chang-hyun, a member of the National Assembly’s Political Affairs Committee from the People Power Party, IBK received audit findings related to loan operations including ▲improper handling of working capital loans for SMEs ▲inappropriate management of financial intermediary support loans ▲unjustified delays in collateral acquisition for facility loans ▲improper handling of safety equipment investment fund loans, and has completed corrective actions.

Issues with Incomplete Financial Support Operations and Loan Handling
Board of Audit and Inspection: "Develop Measures to Supply Funds Centered on SMEs"

The IBK institutional operation audit report prepared by the Board of Audit and Inspection in October last year clearly revealed problems with IBK’s incomplete financial support operations and loan handling. The Board of Audit and Inspection notified IBK regarding its SME financial support status, stating, "The ratio of SME loans based on proprietary funds should be managed and disclosed as a key management indicator, and measures should be developed to supply funds centered on SMEs rather than non-SMEs, considering the bank’s founding purpose."

Despite IBK being a government-owned bank with over 50% government ownership and tasked with supporting SMEs, it was found to have expanded loans more toward non-SMEs than SMEs, leading to a directive to develop measures to supply funds centered on SMEs in line with its founding intent.

The Board of Audit and Inspection explained that from 2009 to 2018, as IBK used its proprietary funds to secure surplus funds, the ratio of surplus funds increased, resulting in a 4 percentage point drop in the SME loan ratio (from 69.8% to 65.8%). It also pointed out that IBK executed 4.1 billion won in safety equipment investment fund loans for purposes unrelated to safety, such as car wash and restaurant building construction, and recognized false purchase orders as sales to provide 1 billion won in working capital loans to SMEs, indicating improper loan handling and misuse of loan funds.

IBK’s own audits from 2019 to 2020 also show numerous incidents where the bank deviated from its core mission of supporting SMEs and disciplinary actions were taken. This year, through 180 general audits conducted up to August, IBK discovered and addressed five disciplinary cases. Last year, 10 disciplinary cases were found and addressed through 337 general audits. Among these, about one-third involved negligence in handling SME facility loans or SME fund loan decisions and problems in loan handling, resulting in disciplinary actions.

2019-2020 Internal Audits
Improper Employee Conduct Including Misappropriation of Petty Cash, Self-Loans, and Bribery Revealed

Improper corrupt acts by internal employees such as misappropriation of petty cash, self-loans, and bribery have also been revealed one after another. From July last year to June this year, Branch Manager A, who worked at a branch in Gyeongbuk, was suspended for three months after receiving tens of millions of won from bank customers.

Branch Manager A received tens of millions of won transferred multiple times to his personal IBK account from customers in exchange for providing business consultations and transaction conveniences, and used the money for household expenses. Last month, Deputy Manager B, who worked at a branch in Hwaseong, was dismissed after it was revealed that from March 2016 to the first half of this year, he executed real estate mortgage loans worth 7.6 billion won under his family’s name for personal gain.

IBK has established the 'IBK Code of Ethics' and 'IBK Employee Code of Conduct' as behavioral standards that employees must comply with to prevent corruption and foster a clean workplace culture. However, following the Discovery Fund redemption crisis and successive employee misconduct incidents, a 'red light' has been lit in terms of customer trust. This is why calls for strengthening the internal control system are coming from both inside and outside the bank.

It is expected that the philosophy of President Yoon Jong-won, emphasizing 'proper management' and 'ethical management,' will inevitably be impacted. At the 59th anniversary ceremony held at the end of July, President Yoon emphasized that 'restoring customer trust' is a management priority and pledged to enhance employees’ compliance and ethical awareness to regain customer trust.