[Reporter’s Notebook] The True Face of State-Owned Banks… Industrial Bank of Korea, It’s Time to Really Make an Effort

Senior Official at Financial Services Commission Points Out Issues
Earlier, Chairman Kim Byunghwan Stated, "Strict Measures Are Necessary"
Deletion of Materials and Messenger Records Before FSS Inspection
Unable to Answer Timing and Details of Reform Committee Launch
Establishing Effective Internal Controls Is Crucial

"IBK must really put in a lot of effort." This is a recent remark made by a senior official at the Financial Services Commission regarding IBK's improper lending. Following Financial Services Commission Chairman Kim Byung-hwan's statement at a monthly press briefing that "strict measures are necessary," another senior official also made a sharp comment.

In February, Financial Supervisory Service (FSS) Governor Lee Bok-hyun warned of the seriousness of the situation, saying, "(The inspection) is ongoing, so it is difficult to disclose specific details and the amount involved, but we understand this as a structural problem within the organization rather than the misconduct of one or two individuals."

It is unusual for the heads of financial regulatory authorities to strongly criticize improper lending by financial companies in succession. This indicates the gravity with which they view the matter. First, the scale of the improper loans is large. The amount of improper loans by IBK claimed by the FSS reaches 58 cases totaling 88.2 billion KRW. This is a notable scale even compared to the interim inspection results previously announced by the FSS for Woori Bank at 233.4 billion KRW (101 cases), KB Kookmin Bank at 89.2 billion KRW (291 cases), and NongHyup Bank at 64.9 billion KRW (91 cases).

Moreover, the nature of the improper loans and the response methods are very serious. Current and former IBK employees and their spouses systematically executed improper loans related to land purchases, construction costs, and unsold commercial properties. Various insiders and acquaintances, including relatives, colleagues who joined the bank at the same time, and private clubs, were intricately involved.

What is more serious is the attitude during the inspection. IBK received whistleblower reports and conducted an internal investigation but reported a reduced scope to the FSS. When the FSS began its inspection, some employees deleted internal investigation materials and even erased records from the company messenger. This is why Governor Lee publicly condemned IBK's improper lending as a "structural problem."

IBK announced follow-up measures such as creating a relatives database (DB) and launching a "Reform Committee." When the reporter asked IBK about the general details and launch date of the Reform Committee, they replied, "We are diligently finalizing the reform plan." This means they announced the committee before deciding on the timing and specific details.

The creation of a relatives DB is a measure already introduced by Woori Bank, KB Kookmin Bank, and others after inspections. From the process of preparing measures to strengthen internal controls, IBK gives an impression of confusion. IBK must remember that it will continuously be compared with commercial banks from the establishment of recurrence prevention measures to their operation. As a "policy bank," IBK is required to fulfill a public role and uphold higher ethical standards than commercial banks. As the senior official at the Financial Services Commission said, IBK now "really must put in a lot of effort" on how to strengthen internal controls and how to implement effective internal controls going forward.