Mirae Asset Life Insurance Receives Caution for Inadequate Golf Course Loan Screening

Financial Supervisory Service, Management Caution Measures

[Asia Economy Reporter Oh Hyung-gil] Mirae Asset Life Insurance received a "management caution" from the Financial Supervisory Service (FSS) for conducting a negligent review during the loan process related to Golf Course A last year.

According to the FSS on the 12th, Mirae Asset Life Insurance was notified on the 30th of last month of one institutional management caution and one improvement item. The FSS advised Mirae Asset Life Insurance to strengthen prior review and deliberation procedures related to credit extension. A management caution is an administrative guidance measure that requests financial companies to exercise caution or voluntarily improve.

It was confirmed that in February last year, Mirae Asset Life Insurance provided a subordinated loan of 49 billion KRW for the purchase of Golf Course A to YKD Development, a subsidiary of Mirae Asset Consulting, analyzing investment profitability without reviewing pessimistic situations such as a decrease in visitors.

In particular, the collateral value appraisal for the golf course was conducted by the same appraisal firm for both the seller and the buyer, raising concerns about the lack of objectivity in the appropriate value of the collateral asset, yet the credit extension was decided without additional review.

Also, unlike the fixed interest collection conditions of general loans, this loan’s interest rate application was changed to a condition where part of the interest rate is collected in arrears.

The financial authorities pointed out the need to improve work procedures to reflect both positive and negative assumptions in principal and interest repayment analysis and investment profitability analysis, and to establish a reasonable investment decision-making system by conducting separate or multiple appraisals of collateral assets.

Mirae Asset Life Insurance’s risk management team was also found to have conducted the review work without separate supplementation or review despite insufficient related materials during the deliberation of the subordinated loan investment in January last year. At that time, the risk management team omitted detailed data that could verify the appropriateness of assumptions in profitability analysis and the feasibility of principal and interest repayment analysis in the investment review report. They also missed review materials regarding reasons for changes in interest rate collection conditions.

The financial authorities instructed to strengthen the review work procedures by examining the investment review requirements stipulated in internal regulations item by item and attaching the results to credit review committee and board of directors’ agendas.