Overhaul banks to end corruptionThe chain of fraud and corruption scandals involving the country’s largest bank, KB Kookmin Bank, raises concerns about the state of the Korean financial sector. The bank hid for years its massive losses from irregular lending and the operation of slush funds at its Tokyo branch. The Bank CenterCredit, a bank in Kazakhstan in which Kookmin bought a 41.9 percent stake for 940 billion won ($885.9 million) in 2008, was recently suspended in March by local authorities for mismanagement, incurring losses of 400 billion won for Kookmin. Yet senior executives were kept in the dark. The bank’s internal control system hardly worked.
The embezzlement scandal orchestrated by employees at the lender’s headquarters is dumbfounding. At least 10 employees from the bank could have been involved in forging documents on housing bonds to pocket about 9 billion won. Among them is an internal affairs supervisor who should have kept watch on irregular practices. The actual losses could exceed 10 billion won. Housing bonds do not cost more than 1 million won each. To embezzle 10 billion won, they would have had to forge the date of maturity on at least 10,000 papers to cash that much. One branch can exchange one or two expired bonds a year. To cash in on 10,000 matured bonds, one or two people could not have done it in a short period of time. The bank and financial watchdog believe that three people committed irregularities since 2010, but more people could have been involved in the crime for a longer period.
The bank, however, is dealing with the scandals as if they are not responsible. The executives blame their predecessors. Yet the board recently approved a handsome stock grant to a former president. Employees complain that they have come under scrutiny to underscore mismanagement by a chief executive chosen by the previous administration. Their excuses hardly pardon embezzlement and the losses of their customers’ money.
The Financial Supervisory Service and prosecution have embarked on an inspection on the bank. Anyone responsible must be punished. Authorities also should share accountability for the poor supervision. The government has wrecked the country’s major banks by placing politicians and bureaucrats in chief executive posts. Authorities have been too soft on them for fear of political backlash. Unless political interference is banned, local banks cannot shape up.
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