IBK, Ethical Management in Front but Internal Corruption Behind (Comprehensive)

Audit Board Criticizes Incomplete Financial Support Operations and Loan Handling
Repeated Employee Misconduct Including Self-Loans and Bribery Emerges

[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 (BAI) for incomplete financial support operations and improper loan handling. Recently, incidents of employee 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 criticism from the BAI regarding loan-related operations such as ▲improper handling of working capital loans for SMEs ▲inappropriate management of financial intermediary support loans ▲unjustified delays in acquiring collateral for facility loans ▲inappropriate loans for safety equipment investment funds, and has completed corrective actions.

The IBK institutional operation audit report prepared by the BAI in October last year clearly revealed issues with IBK's incomplete financial support operations and loan handling. The BAI 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 established to supply funds centered on SMEs rather than non-SMEs, considering the bank's founding purpose."

Although IBK, in which the government holds more than 50% of shares, is tasked with the role of a dedicated bank for SME financial support, it was found that loans were expanded more toward non-SMEs than SMEs. The BAI pointed out that IBK should devise a plan to supply funds centered on SMEs in line with its founding purpose.

Issues with Incomplete Financial Support Operations and Loan Handling

The BAI 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%). Additionally, IBK executed 4.1 billion KRW in safety equipment investment fund loans for purposes unrelated to safety, such as constructing a car wash and restaurant buildings, and recognized false purchase orders as sales to provide 1 billion KRW in working capital loans to SMEs, indicating improper loan handling.

IBK's own audits from 2019 to 2020 also revealed 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 identified 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 facility loans or loan decisions for SMEs, causing problems in loan handling and resulting in disciplinary actions.

2019-2020 Internal Audits
Misappropriation of petty cash, self-loans, bribery, and other inappropriate employee behaviors revealed

Inappropriate corrupt acts by internal employees, such as misappropriation of petty cash, self-loans, and bribery, have also been continuously exposed.

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 into his personal IBK account from customers in exchange for providing business consultations and transaction conveniences, and used the funds for personal 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 KRW in his family's name to gain benefits.

IBK has established the 'IBK Code of Ethics' and 'IBK Employee Code of Conduct' as behavioral standards that executives and employees must comply with to prevent corruption and foster a clean workplace culture. However, following the Discovery Fund redemption crisis, repeated employee misconduct has triggered a 'red light' in 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 President Yoon Jong-won's philosophy of 'right 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.