[Exclusive] Lost 187.7 Billion Won, Recovered Only 13.4 Billion Won... Recovery Rate in Single Digits for 3 Consecutive Years

[Hollow Internal Controls] ②
More Financial Accidents, But Recovery Rate at Its Worst
Only 7.2% Last Year... Just 9.9% Over the Past 5 Years
Some Cases Not Recovered at All... "Internal Controls Must Be Stricter"

The amount of financial accidents such as embezzlement in the banking sector reached an all-time high last year, but the recovery rate was only 7%. Of the 187.7 billion KRW involved, only 13.4 billion KRW was recovered. Even when looking at the past five years, the recovery rate was just 9.9%. In particular, it has not exceeded single digits for three consecutive years recently. There were even cases where no recovery was made at all. Along with efforts to increase the recovery rate, there are calls for stricter internal controls to quickly detect abnormal signs.

Recovery Rate of 9.9% Over the Past 5 Years... Financial Accidents Result in Direct Corporate Losses

According to data received on the 1st from the Financial Supervisory Service by the office of Kim Jae-seop, a member of the National Assembly's Political Affairs Committee from the People Power Party, the actual recovery rate of financial accident amounts caused by embezzlement and breach of trust in the banking sector over the past five years (2020?2024) was 9.9% as of now. Out of a total of 384.321 billion KRW, only 38.144 billion KRW was recovered. This data covers 15 domestic banks including commercial, regional, and policy banks.

The recovery rate showed a worsening trend. In 2020, it was 15%, and in 2021 it exceeded 55%, but from 2022 onwards, it recorded single digits for three consecutive years. Specifically, in 2022 and 2023, the rates were 3.9% and 3.8%, respectively, remaining in the 3% range. Although there were financial accidents amounting to 158.079 billion KRW, the recovered amount was about 6 billion KRW. More than three years have passed since the incidents, but the money has not been recovered. Even last year, when the scale of financial accidents was larger than the combined two years, the recovery rate was only 7.2%.

There are cases where no recovery has been made at all. Busan Bank suffered losses amounting to 718 million KRW due to a financial accident in 2023 but has not recovered a single won to date. The financial accident in 2022, amounting to 1.493 billion KRW, only recovered 64 million KRW, resulting in a recovery rate of 0.04%. This incident involved a foreign exchange officer working at a branch in Busan who embezzled customers' money from abroad multiple times over about a month and a half. The embezzled money was mostly lost through investments in derivatives and other products, and it is known that very little remained at the time.

Woori Bank experienced losses totaling 72.098 billion KRW from seven financial accidents in 2022, including an embezzlement case involving about 60 billion KRW, but the current recovery rate is only 0.9% (658 million KRW). A Woori Bank official stated, "We have currently increased the recovery rate to about 3.2% (2.318 billion KRW)" and added, "We will do our best to recover the damages from financial accidents." Due to poor recovery, financial accidents are directly translating into corporate losses.

Recovery is Difficult and Time-Consuming... "Internal Controls Must Be Stricter"

When a financial accident occurs, banks generally first reflect it as a loss and hold the responsible parties, such as employees or debtors, liable for compensation. In many cases, this process leads to lawsuits. A representative from a commercial bank said, "Banks are strict. If there is a credit default, they even hold employees accountable after reviewing past procedures," adding, "The basic attitude of banks is to recover the money by any means."

However, the possibility of recovery and the time required for full recovery vary greatly depending on the financial accident. In cases where trials are ongoing or where breach of trust occurred due to employees inflating loan amounts, recovery takes a long time, resulting in low recovery rates even for past incidents. Lawsuits take at least 3 to 4 years, and recovery actions can only be taken after the case is concluded. For banks, this means waiting.

The banking sector explains that recovery related to credit accidents caused by employee fault also takes time because they cannot forcibly recover from customers. A financial industry official said, "If employees and customers collude to obtain loans, banks place liens and quickly sell collateral to demand repayment, but if only the employee is at fault, they cannot demand customers to repay quickly," adding, "If there is no delinquency and interest is being paid regularly, banks have to wait until maturity, so recovery takes time."

Large-scale accidents or those discovered late by banks reveal internal control deficiencies and lead to lower recovery rates. In many cases where embezzlement continued over several years before detection or criminal acts were discovered late, the scale of the accident is large and the embezzled money has already been spent, making recovery more difficult.

This also exposes structural flaws in banks. Internal supervision was insufficient, allowing problems to persist for a long time without early detection. The reason for calls to improve internal systems to quickly detect abnormal signs such as embezzlement is to increase recovery rates. Lawmaker Kim Jae-seop said, "It is now urgent for the banking sector to establish autonomous internal control standards and implementation inspection systems," and added, "We will also pursue legislation at the National Assembly level to strengthen the responsibility and control functions of financial institutions."