Weed out corporate fraud

Financial institutions in which the government has a stake and commercial banks lent millions of dollars to Moneual, a robot vacuum cleaner maker that filed for court protection last week based on the company’s fabricated export documents. Moneual, which grew rapidly in short period of time due to the popularity of its robot vacuum cleaners, cooked export data and forged documents to seek state guarantees from the Korea Trade Insurance Corporation and get large loans from commercial banks. As of September, the company had outstanding loans of 670 billion won ($639.8 million) issued by 10 financial institutions. The state insurer and banks all fell for the corporate ruse.

The Financial Supervisory Service scurried into an investigation only after the company filed for court protection. The problem is the damage already had been done. The company aroused suspicion a year ago when it sought bank loans entirely on the basis of its export bond receivables. Despite revenue of more than 1 trillion won, cash flow from operations was just 1.5 billion won. Yet financial institutions paid little heed to these dubious records or never bothered to check the status of the exports. They lent billions based on nothing more than the company’s own papers and were not attentive to risk control management after the loans were made. The lenders now are arguing over who’s responsible, blaming the state trade insurer for guaranteeing the bond receivables. The case underscores how poorly local financial institutions manage their debt profile against the risks of nonperformance.

During recent questioning in the National Assembly, Financial Services Commission Chairman Shin Je-yoon and Financial Supervisory Service Gov. Choi Soo-hyun said they will revise regulations to enforce tougher risk management of debt. Their response suggests that regulating authorities and financial institutions learned nothing after a loan scheme by a KT affiliate in February. Under such lax supervision and loan practices, fraudulent borrowing and reckless lending won’t cease. Regulators should examine the financial sector to weed out any other rotten apples among corporate borrowers.

JoongAng Ilbo, Oct. 29, Page 30