By Kang Seung-woo
Staff reporter
A "financial accident" to the tune of least 100 billion won ($80.20 million) has occurred at Kyongnam Bank, after an employee of its structured finance division issued bank guarantees on loans without going through the proper procedure, the Financial Supervisory Service (FSS) said Thursday.
The bank official identified by his surname Jang, who works in the lender's office in Seoul, illegally guaranteed funds for builders' project financing (PF) when they received loans from non-banking financial institutions from October 2008 to April 2009.
PF is used to finance long-term projects, usually real estate development such as the building of apartments or a shopping center, in which the borrowing is serviced from the profit generated by the project. Hence, financial institutions give loans, if they determine that the project will make money.
Kyongnam, one of the three banks owned by Woori Financial Group, found last month that the employee had used the bank's seal arbitrarily for guarantees without reporting it to his superior officers, after the repayment of 20 billion won was due, causing an FSS inspection on May 13.
He issued the guarantees to 13 financial firms, including 10 savings banks, FSS officials said.
They plans to wrap up their investigation by next week and take action based on it.
"It may not have been easy for Kyongnam Bank to unearth this because Jang was trading off the books, and we will find those involved and take punitive action," a FSS official said.
The bank's holding company, Woori, is following the FSS probe closely.
"We do not yet know of the exact scale of the incident. We are waiting for results of the FSS investigation," a spokesman said.