Two Days After Financial Supervisory Service Inspection Support
"Unusual from the Midterm Results Announcement"
Briefing Time and Content Also Criticized as Insufficient
Two days after the Financial Supervisory Service (FSS) dispatched inspectors regarding the controversy over candidate Yang Moon-seok of the Democratic Party of Korea in Gyeonggi Ansan Gap’s illicit loan issue, an interim inspection result was released. The FSS and the National Credit Union Federation of Korea announced that illegal and unfair allegations were found but failed to confirm the targets for reporting to investigative agencies or clearly clarify the facts. The swift inspection support by the FSS and the announcement of the interim inspection results the day before the April 10 general election early voting are expected to fuel ongoing controversy over ‘election interference.’
The FSS and the National Credit Union Federation announced the interim results of the inspection of Daegu Suseong Credit Union on the 4th. They plan to take measures such as sanctions against credit union executives, borrowers, and loan solicitors, as well as reporting to investigative agencies.
In November 2020, Yang’s spouse took out a loan of 580 million KRW from a lending company and jointly purchased an apartment in Seocho-gu, Seoul, for 3.125 billion KRW with Yang. At that time, due to loan restrictions in speculative areas, financial institution loans were limited, so it appears they used a lending company. About five months later, in April 2021, Yang’s daughter, who was a university student, borrowed 1.1 billion KRW in business operating funds secured by this apartment. The daughter transferred 581 million KRW of the loan to the lending company to repay the loan, and the remainder was deposited into Yang’s spouse’s account.
Both institutions stated that illegal and unfair allegations such as misuse of personal business loans, submission of false documents, and inadequate credit screening were found. Personal business loans should be used only for business purposes, but Yang’s daughter did not use the deposited loan funds for business purposes and instead used them to repay her parents’ mortgage loans. Most of the seven product transaction statements submitted by Yang’s daughter to the credit union were also found to be falsified. The credit union was found to have conducted credit screening formally without considering business history or viability during the loan review.
Lee Bok-hyun, Governor of the Financial Supervisory Service, is attending the Emergency Macroeconomic and Financial Meeting held at the Bankers' Hall in Jung-gu, Seoul on the 21st. The closed-door meeting was attended by Choi Sang-mok, Deputy Prime Minister and Minister of Economy and Finance, Kim Ju-hyun, Chairman of the Financial Services Commission, and Lee Chang-yong, Governor of the Bank of Korea. Photo by Jo Yong-jun jun21@
This interim inspection announcement was made three days after the National Credit Union Federation conducted an on-site inspection and two days after FSS Governor Lee Bok-hyun proposed inspection personnel support to the federation. The financial sector regarded both the interim announcement of an individual credit union’s on-site inspection and the timing of the announcement as unprecedented. While the National Credit Union Federation usually imposes internal disciplinary actions or reports to investigative agencies when illegal acts are found during individual credit union inspections, this is the first time an interim inspection announcement, not a final inspection announcement, was made to the media.
The briefing was also arranged hastily. The FSS and the federation announced the interim inspection results at 4 p.m. on the 4th. The media was informed of the briefing time only about 1 hour and 30 minutes earlier, at around 2:30 p.m. The briefing lasted about 7 minutes, and the Q&A session ended in 5 minutes.
The inspection announcement content was also criticized as insufficient. For example, regarding the targets for reporting to investigative agencies, the FSS failed to provide a proper response. Lee Ho-jin, Director of the FSS Small Finance Inspection Division 2, said about the reporting targets, “This is currently a limitation of the inspection. Since no clear details have emerged, rather than specifying allegations by target, we intend to report the case details to investigative agencies.” Regarding who encouraged taking out the business loan, he replied, “The facts have not yet been clearly revealed.”
Starting with the FSS, which has no direct supervisory authority over credit unions, proactively supporting inspection personnel, the controversy over government ‘election interference’ is expected to continue. The day before the briefing, Governor Lee cited the February agreement between the Ministry of the Interior and Safety and the Financial Services Commission on credit union supervision, stating, “(The inspection support) was decided alone and judged without consulting anyone.” He also called Yang’s candidate’s illicit loan “a clear illegality” and said, “If possible, I want to produce results within five days without extending the period.”
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