[In a Tight Spot with Im Jong-ryong's Administration] ① "Not Individual Misconduct but an Organizational Culture Issue"

Editor's NoteWoori Financial Group has once again become the center of controversy due to improper loans involving relatives of former Chairman Sohn Tae-seung. Why do various unprecedented financial incidents such as embezzlement, misappropriation, and breach of trust amounting to hundreds of billions of won occur more frequently here than at other banks? While other banks mainly face issues stemming from individual misconduct outside the system, Asia Economy believes that the core cause at Woori Financial is a long-accumulated organizational culture. This series begins with a focus on Woori Financial's flawed organizational culture, hoping that exposing these issues through articles will lead to a fundamental transformation. Asia Economy plans to continue addressing the organizational culture problems at Woori Financial in future reports.

At Woori Bank, one of the major commercial banks, an incident that seems like something from the 20th century has occurred, causing trust in Woori Financial and its affiliates to plummet. Amid ongoing financial accidents such as non-performing loans, incomplete sales, and embezzlement, allegations of improper loans involving relatives of former Woori Financial Group Chairman Sohn Tae-seung and the company's handling of the matter have exposed not only a lax internal control system but also the entrenched outdated organizational culture that had been hidden beneath the surface.

Im Jong-ryong, Chairman of Woori Financial, held an emergency executive meeting on August 12, immediately after the improper loan incident involving relatives of former Chairman Sohn, stating, "Unjust orders, improper work practices, opportunistic behavior, and gaps in the internal control system are the causes of this incident, and this is an unavoidable responsibility of the management, including myself, who leads Woori Financial and Woori Bank." He added, "We must create an atmosphere where unjust orders from superiors can be firmly rejected, and the organization must thoroughly protect employees who perform their duties according to these principles by fostering a corporate culture."

Chairman Im is well aware of Woori Financial's flawed organizational culture. Even if orders are unjust due to hierarchical superior-subordinate relationships, they are followed as is; work is carried out according to established but improper practices tied to factions and connections; and opportunistic behavior is shown by watching the moods of powerful superiors. No matter how well internal control systems and regulations are established, if the people operating them are problematic, such systems and regulations become useless.

Brother-in-law Acting as Honorary Branch Manager, Internal Assistance and Influence on Personnel? ... Evidence of Distorted Organizational Culture

At the center of the improper loan allegations are Kim, the brother-in-law of former Chairman Sohn, and former regional head Lim. Kim reportedly used business cards bearing the title of honorary branch manager of Woori Bank and flaunted his relationship with former Chairman Sohn at locations such as the Seoul Sindorim Financial Center and Seolleung Financial Center. Woori Bank operates a program as part of its sales strategy that appoints VIP customers recommended by branch managers as honorary branch managers, but the bank stated that Kim was never appointed nor issued business cards.

Within the bank, Kim's behavior has been discussed multiple times. It is even reported that rumors circulated about Kim having enough influence to affect group personnel decisions. However, opportunistic behavior influenced by awareness of former Chairman Sohn's power seems to have prevented any decisive action. Furthermore, Lim, who retired in December last year and was dismissed in April this year following an internal audit, actively assisted Kim, leading to an uncontrollable situation. According to the Financial Supervisory Service, most of the 42 loans were confirmed to have been led by Lim.

In the financial sector, this incident is analyzed as a representative case of a distorted organizational culture. As a result of public fund injections, Woori Bank has been under the control of the Korea Deposit Insurance Corporation for 20 years since 2001, during which it suffered various external pressures, limiting improvements to its internal organizational culture. Particularly, compared to other commercial banks, it is viewed that Woori Bank has not been free from the influence of financial authorities and political circles, resulting in the so-called 'bank DNA' being already damaged.

A senior financial official familiar with Woori Bank's situation explained, "It is true that Woori Bank has relatively poor capabilities in thoroughly reviewing and managing matters," adding, "There has been internal criticism that once someone becomes a department head, they stop working and only manage networks inside and outside, and this culture has accumulated over a long time."

Another official from a commercial bank commented, "Considering the significant strengthening of the internal control system, it is surprising that such an incident could occur," and evaluated, "It may be a case where problems accumulated throughout the entire organization surfaced all at once, rather than just individual misconduct."

Eleven Borrowers, Large-scale Loans in a State of Capital Erosion... Neglected for Over Four Years

At least 11 borrowers were involved in the improper loans linked to former Chairman Sohn's relatives. Considering the repayment of principal and interest, the number of borrowers increases to about 20. Most loans were made by establishing corporations, and cases were identified involving failure to verify the authenticity of documents, improper collateral and guarantees, violations of loan screening procedures, and inadequate checks on misuse of loan purposes.

There were instances where collateral values were inflated to consecutively obtain loans for real estate purchase funds and remodeling construction funds, and evidence was found of loan funds being used for purposes other than originally intended. It was even confirmed that loans were executed by upgrading the credit rating of borrowers who were in a state of complete capital erosion at the time of loan application.

The related loans were disbursed until January of this year, 10 months after former Chairman Sohn's resignation. Woori Bank recognized the facts during credit supervision around September to October last year but only conducted an internal audit in January this year. Furthermore, the bank did not notify the Financial Supervisory Service of the dismissal in April of Lim, who had actively assisted Kim, the brother-in-law of former Chairman Sohn. Despite recognizing problems with the loans, no significant control measures were taken regarding the related loans.

A Financial Supervisory Service official explained, "The credit supervision department reported the loans to relatives of the former chairman to the current bank management, and Woori Financial Group's management could have known by March this year at the latest," adding, "We view not only the financial accident itself but also the overall failure of internal control, including the post-incident response procedures, as very serious."