[Exclusive] 27 Times Increase in 5 Years... Last Year's Bank Financial Fraud Amount Reaches 187.7 Billion Won

[Hollow Internal Controls] ①
Highest Financial Loss in Five Years
Number of Incidents Doubled from Previous Year
KB Kookmin Bank Tops in Loss Amount... NH Nonghyup Bank Leads in Number of Cases
Kim Jaeseop: "Proof That Internal Controls Are Not Functioning"

Last year, the financial loss from banking sector incidents nearly reached 187.7 billion KRW. This is the highest amount in the past five years, and the number of incidents doubled compared to the previous year. The bank with the largest amount of loss was KB Kookmin Bank, while NH Nonghyup Bank had the highest number of incidents. Although internal control has been emphasized as the top priority by most banks in the financial sector, there are concerns that it is still not functioning properly.

According to the 'Bank-specific Financial Incident Status for the Last 5 Years' received on the 2nd 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 total financial loss from incidents last year among 15 banks?including commercial banks, regional banks, and policy banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup, Gyeongnam, Busan, iM, Jeju, Jeonbuk, Gwangju, Industrial Bank of Korea, IBK, Export-Import Bank, SC First)?was 187.79 billion KRW. The amount was calculated based on the loss at the time the incident was discovered. It is estimated that the actual financial loss suffered by banks is even higher. For example, the recent improper loan incident at IBK Industrial Bank initially reported a loss of 24 billion KRW, but further investigation revealed a total loss of 88.2 billion KRW.

Last year’s loss was the largest amount in the past five years. Compared to the 6.852 billion KRW loss in 2020, it increased 27 times. The loss rose to 31.68 billion KRW in 2021 and further to 91.471 billion KRW in 2022. In 2023, the loss decreased to 66.08 billion KRW, suggesting a downward trend, but last year it surged again to nearly 200 billion KRW, setting a new record.

By bank, KB Kookmin Bank suffered the largest financial loss last year, amounting to 69.423 billion KRW. While Kookmin Bank recorded a loss of 14.969 billion KRW in 2022 and only 423 million KRW in 2023, indicating relatively smaller incidents compared to other banks, it experienced eight publicly disclosed financial incidents (each exceeding 1 billion KRW) last year, including a 10.4 billion KRW incident in March and a 13.5629 billion KRW incident in December related to breach of trust. NH Nonghyup Bank experienced a total of 45.376 billion KRW in financial losses, including a 10.9 billion KRW improper loan incident in February involving false sales contracts. Woori Bank reported financial losses totaling 38.333 billion KRW last year, with the most notable case being a 24.9 billion KRW improper loan scandal involving former Woori Financial Group Chairman Sohn Tae-seung. Among policy banks, IBK Industrial Bank stands out. The Financial Supervisory Service recently confirmed improper loans totaling 88.2 billion KRW at IBK Industrial Bank, involving employees’ family members, relatives, colleagues who joined the bank at the same time, and business partners. The 80 billion KRW-level financial incident involving current and former employees at the end of last year includes the initially reported loss of 24 billion KRW at the time of discovery.

The number of incidents also reached a five-year high. Last year, 61 financial incidents occurred in the banking sector, more than double the 30 incidents in the previous year. The number of incidents had remained around 30 in 2020 (37 incidents), 2021 (32 incidents), and 2022 (31 incidents). By bank, NH Nonghyup Bank had the highest number of incidents last year with 16 cases, followed by KB Kookmin Bank with 13 cases and Woori Bank with 11 cases, which roughly aligns with the ranking by financial loss.

Jeju Bank and Korea Development Bank had no financial incidents in the past five years. Gwangju Bank had no reported incidents from 2021 to 2023, and although one incident occurred last year, it involved a small amount of 47 million KRW, all of which was recovered.

As financial incidents have increased significantly, there are many criticisms that internal control, which has become the top priority in the banking sector, is not functioning properly. Kim Jae-seop, a member of the People Power Party, stated, "Enhancing corporate value in the capital market and restoring trust start with transparency and strengthening internal control systems in financial institutions. The sharp increase in related incidents and violations in recent years is evidence that internal controls have not been effectively operating."