Emerging Due to Organizational Culture Issues... Woori Bank's Allegations of Improper Loans to Relatives [AK Radio]

No Report to FSC After Incident Recognition
Organizational Culture That Blindly Follows Unfair Instructions

Recently, allegations of improper loans involving relatives at Woori Bank have emerged as a major issue in the financial sector, bringing to light problems within the bank's organizational culture. The revelation of inappropriate loan suspicions involving relatives of former Woori Financial Group Chairman Sohn Tae-seung has damaged the bank's credibility, and the repercussions of this incident are extending to the current management.

The core of this case is that approximately 61 billion KRW in loans were made to corporations established by relatives of former Chairman Sohn Tae-seung, including his brother-in-law. Of this amount, 35 billion KRW was identified as improper loans, with multiple issues uncovered during the loan screening process, such as failure to verify the authenticity of documents and excessive collateral valuation. Additionally, a corporation established by Sohn’s wife received a loan of 13.9 billion KRW for real estate purchases, reportedly acquiring real estate worth about 16.5 billion KRW through this loan.

The problem goes beyond just improper loans. Woori Bank was aware of the incident internally but only conducted an internal audit about four months later and did not report it to the Financial Supervisory Service (FSS). The FSS became aware of the issue not through voluntary reporting by the bank but via a separate tip-off. From the FSS’s perspective, considering the gravity of the matter, the bank’s failure to report in advance is a very serious issue. In particular, whether current Chairman Lim Jong-ryong and President Cho Byung-kyu were aware of the incident between September last year and January this year is at the heart of the controversy.

The reason this incident has escalated is due to suspicions that Chairman Lim and President Cho knew about the improper loans but did not report them to financial authorities. The case was uncovered during a comprehensive investigation of loans to retirees, revealing that retired Head Im led the loans to relatives of former Chairman Sohn. This has raised concerns about the overall loan screening process within Woori Bank.

[Image source=Yonhap News]

A bigger issue lies in the organizational culture. This incident has highlighted that Woori Bank’s organizational culture is a major cause of financial accidents. Immediately after the incident, Chairman Lim convened an emergency executive meeting to apologize, citing a culture of blindly following improper orders and opportunistic behavior aimed at pleasing superiors as root causes. Furthermore, deficiencies in the internal control system were also pointed out as problematic.

These problems at Woori Bank are not limited to this incident alone. Historically, factional conflicts between former Commercial Bank and Hanil Bank employees have existed within the bank, influencing executive appointments. Each time management changed, individuals from specific backgrounds occupied key positions, reinforcing factionalism within the organization.

The labor union also constitutes a significant part of Woori Bank’s organizational issues. The union wields stronger influence compared to other financial institutions and is deeply involved in major personnel decisions. It is noted that union leaders often get promoted to center heads or division heads after their terms, highlighting a problematic collusive relationship between labor and management.

Amid these issues, there is growing interest in how Woori Bank will change. Experts emphasize that securing the independence and transparency of the board of directors is essential to reform the organizational culture. There are also strong calls for a comprehensive investigation and voluntary reporting of improper loans to fundamentally resolve internal problems.

Chairman Lim Jong-ryong has stated that he will not cling to his position over this incident but is expected to remain until the completion of his efforts to strengthen the group’s portfolio. Recently, Woori Financial Group acquired POS Securities and is in the process of acquiring Dongyang Life Insurance and ABL Life Insurance. Since these acquisitions require approval from financial authorities, Chairman Lim appears to consider completing these tasks as part of his role.

This incident suggests a high likelihood of recurrence unless Woori Bank addresses its structural organizational problems. The controversy, which began with improper loans to relatives, has exposed deep-rooted issues in the bank’s organizational culture, drawing close attention from the entire financial sector. Going forward, there is keen interest in how Woori Bank will resolve these issues and how financial authorities will respond.

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