Authorities: "Woori Bank's Inadequate Post-Response to Improper Loans" Also Targets Lim Jong-ryong and Cho Byung-kyu

On the 25th, the Financial Supervisory Service (FSS) pointed out that regarding the improper loan incident involving relatives of Sohn Tae-seung, former chairman of Woori Financial Group, managed by Woori Bank, "not only the incident itself but also the procedures for post-response, such as failure to report the financial accident, were not properly carried out." Director Lee Bok-hyun also emphasized the possibility of sanctions against current executives Lim Jong-ryong, chairman of Woori Financial Group, and Cho Byung-kyu, president of Woori Bank, stating, "Someone must clearly take responsibility for the delayed reporting."

The FSS released a press reference material on the same day, stating, "(Woori Bank's) overall internal control failure is at a very serious level." Previously, Woori Bank had explained that it was not obligated to report the incident to the FSS, arguing that "the matter corresponds to a failure due to negligence in credit screening and thus does not require reporting to the FSS."

Woori Bank has raised both the upper and lower limits of its 5-year fixed-rate mortgage loan interest rates by 0.11%, while Shinhan Bank plans to increase its mortgage loan interest rates by 0.05% starting from the 15th. The photo shows a Woori Bank branch in Seoul. Photo by Jinhyung Kang aymsdream@

However, the FSS rebutted that the inspection results showed Woori Bank was already aware of the facts related to the criminal charges specified in the complaint filed with investigative authorities around the 9th, during its own audits from January to March and disciplinary processes in April. Based on this, the FSS explained that at least before April of this year, Woori Bank had an obligation to report and disclose the financial accident.

The FSS also pointed out that before Woori Bank conducted its own audit, in the fourth quarter of last year, a significant portion of the improper loans identified in this inspection were already recognized as being handled improperly and becoming non-performing. The FSS stated, "If at the time of recognition there was knowledge of criminal charges beyond negligence in credit screening, there is room to consider that the obligation to report and disclose the financial accident had already arisen at that time."

According to the current Banking Act, the Enforcement Decree of the Banking Act, and the Enforcement Rules on Inspection and Sanctions of Financial Institutions, financial institutions are obligated to immediately report to the FSS as a financial accident and disclose on their websites if there is suspicion of crimes such as embezzlement or breach of trust related to employees or others involved in financial operations.

The FSS further noted that from July last year, while loans handled by the problematic department head continued to be notified as targets for non-performing loan inspections, around September to October during credit supervision, Woori Bank recognized that the loans were related to relatives of former chairman Sohn but did not report or take immediate action such as conducting an internal audit.

Woori Bank only began its internal audit in January this year, after the department head had retired, and even after completing the audit in March and disciplining the department head in April, it did not report this to the FSS. It was only after the FSS received a tip-off related to the incident around May and requested fact verification that Woori Bank reported it to the FSS. Notably, although the audit process recognized criminal charges against the department head and the borrower, the complaint to investigative authorities was filed only immediately after the FSS inspection results press release.

Criticism also continued regarding the timing when current executives such as Chairman Lim and President Cho became aware of the incident. According to the FSS, Woori Bank’s credit supervision department reported the loan to relatives of former chairman Sohn to the current bank management around September to October last year, and the financial group’s management was understood to have recognized it at the latest during the personnel council agenda reflecting audit results around March this year.

The FSS also revealed that Woori Financial Group and Woori Bank, despite being aware of the incident, never properly reported it to the board of directors. The FSS stated, "This seriously undermines the intent and efforts of governance improvements jointly promoted by financial authorities and the banking sector."

In particular, Director Lee hinted at the possibility of punishment and sanctions against these current executives. Appearing on KBS Sunday Diagnosis on the same day, Director Lee said, "Through the inspection, it was confirmed that as early as last fall, executives including the current president had received reports on improper loans related to the former chairman. Even the financial group appears to have received reports no later than March this year." He added, "It has been well over a year under the new financial group chairman and president system, yet the way of handling the situation repeats past bad practices, which raises strong concerns."

The FSS stated, "We view the overall failure of internal controls as very serious," and added, "We will thoroughly investigate the progress of recognition, response processes, and related suspicions regarding the improper loans of the financial company, and take the strictest possible measures against responsible employees in accordance with relevant laws and procedures."