Lee Hyo-jin covers the Bank of Korea, the banking industry and broader financial news. Her previous beats include foreign affairs, North Korea and general reporting on Korean society.
IBK under scrutiny over internal controls after major fraud case at China unit
Industrial Bank of Korea's headquarters in Jung District, Seoul / Korea Times file
By Lee Hyo-jin
The Industrial Bank of Korea (IBK) is facing scrutiny over its internal controls after its Chinese subsidiary lost 83.4 billion won ($60.3 million) due to financial fraud that allegedly went undetected for months.
According to documents submitted Monday by IBK and the Financial Supervisory Service (FSS) to Rep. Shin Dong-wook of the People Power Party, IBK's Chinese subsidiary provided non-face-to-face loans to local borrowers in partnership with a non-bank financial institution.
The financial institution used an online lending platform to recruit borrowers and collect loan repayments. Borrowers sent their repayments to an account designated by the platform, which was supposed to transfer the money to IBK.
However, the platform allegedly changed the repayment account without authorization and diverted the money instead of sending it to IBK. It also allegedly falsified records to make it appear that borrowers had repaid their loans.
As a result, some borrowers were marked as delinquent even after making their payments, while IBK failed to receive the money.
The incident started in December 2025 and continued until June, according to an FSS report.
The bank disclosed the amount lost as 83.376 billion won in July. This figure does not necessarily represent the total loss, which could change depending on the outcome of investigations and efforts to recover the funds.
IBK told the FSS that it had checked repayment records against actual deposits every day. However, the bank said it first became aware of the problem on June 24, after settlement funds failed to arrive and complaints from borrowers mounted.
The discrepancy has raised questions about the effectiveness of IBK's internal control system, as the problem continued for more than six months without detection.
The state-run lender also appears to have missed warning signs.
Five Chinese financial institutions had already removed the local lending platform from their list of partner institutions in March and April, according to the documents.
IBK said it is cooperating closely with Chinese authorities as an investigation is underway.
"An investigation is currently underway by the local authorities, and we plan to pursue necessary legal action in close cooperation with relevant authorities. We are also continuing to review and improve our internal control procedures," an IBK official said.
The latest incident comes after the lender disclosed a separate financial fraud case involving 4.78 billion won in June linked to a commercial property presales scam.
According to a regulatory filing, that incident took place between May and December 2024. The scam involved borrowers misleading the lender about property values and presales prices to secure larger loans.