Audit shows KDB cooked its booksThe Board of Audit and Inspection yesterday revealed an audit outcome critical of the Korea Development Bank that showed it has inflated its operating profits then spent the money on overblown bonus payments for its employees.
The finding was part of the audit of four state-run financial companies. Korea Development Bank, Export-Import Bank of Korea, Korea Exchange Bank and Korea Securities Depository were investigated for one month since September last year, and the probe outcomes were announced yesterday.
Speculation grew yesterday about the timing of the announcement and the audit target, because it came only days after President Park Geun-hye hinted at a massive reshuffle in the public institutions currently headed by the officials appointed by her predecessor Lee Myung-bak. The Korea Development Bank is led by Kang Man-soo, a close associate of Lee who served as his finance minister.
According to the report, Korea Development Bank inflated up to 244.3 billion won ($220 million) of operating profit and spent 4.1 billion won of the money to pay bonuses to its executives and employees. The audit board issued a warning to the state-run bank and also ordered the Financial Services Commission to investigate whether the previous accounting audits by outsiders on the bank were conducted properly or not.
The audit board also told Korea Development Bank to take appropriate measures to reduce its loss linked to the high-interest savings product. The so-called “Direct Deposit,” launched in September 2011, brought about 24.4 billion won of losses to the bank as of September last year, the audit report said.
If the trend continues, the loss will grow to 109.4 billion won by the end of this year, the audit board said.
The Export-Import Bank of Korea was criticized for having failed to properly provide assistance to small- and medium-sized exporters.
The audit board also said Korea Exchange Bank failed to provide proper supervision to prevent stock price manipulations and insider trading.
The problems in the state-run financial institutions unveiled by the audit board largely coincide with the concerns President Park recently expressed.
Park has vowed to sternly punish stock price manipulation while promising stronger support for smaller companies under her vision of “economic democratization.”
The strong audit on Korea Development Bank also fueled speculation that it was linked to the massive reshuffling in the public institutions foreshadowed by Park earlier this week.
“There will be many appointments in the agencies under the ministries and public institutions in the future,” Park told her ministers during Monday’s cabinet meeting. “You should look to appoint the people who can share the governance philosophy of the new administration.”
With her remarks, the ability to share Park’s philosophy emerged as a key standard in appointments as well as expertise, and speculations grew that many financial heavyweights labeled as associates of Park’s predecessor Lee could be replaced.
When they were appointed, regional favoritism was also pointed out, because almost all of the powerful officials in the financial industry were from Busan and South Gyeongsang.
Chairmen of the six largest financial groups - Kang Man-soo of Korea Development Bank; Euh Yoon-dae of KB Financial Group; Lee Pal-sung of Woori, Kim Jung-tae of Hana; Han Dong-woo of Shinhan and Shin Dong-kyu of Nonghyup - are all from the Busan-South Gyeongsang region.
In addition, heads of the Financial Services Commission, Korea Federation of Banks and Korea Finance Corporation are all from the same region.
Park nominated Shin Je-yoon, a veteran finance official and native of Seoul, earlier this month to become the new head of the Financial Services Commission, but the rest are still holding on to their posts as of yesterday.
Although the Blue House said there won’t be an “artificial reshuffle,” a senior presidential aide told the JoongAng Ilbo that the latest audit outcome can be used to review the professional expertise of a public institution’s head.
Ahead of the expected reshuffles at public institutions, special probes are also ongoing on senior-level civil servants and state-run companies heads. The office of the presidential senior secretary, Board of Audit and Inspection, Prime Minister’s Office and Ministry of Public Administration and Security are looking into the discipline and integrity of senior civil servants and heads of state-run companies.
By Ser Myo-ja [firstname.lastname@example.org]