By Kim Jae-kyoung
Staff reporter
Woori Bank has suffered losses of around 200 billion won stemming from irregular payment guarantees for project financing (PF), according to the Financial Supervisory Service (FSS) Tuesday.
The financial watchdog said that the lender provided guarantees for PF worth 4.2 trillion won for six years from 2002 to 2008 without going through the proper procedure.
As a result, the nation's second largest lender wrote off 194.7 billion won in losses associated with PF in June last year and set aside an additional 200 billion won in loan loss provisions. PF is a method of financing used to support the construction business and industrial projects based upon projected cash flows.
It added that Woori's credit division signed an agreement to buy asset-backed commercial paper worth 4.2 trillion won issued by real estate developers without approval from the bank's credit screening committee. The agreement was the bank's promise to repay the amount, a de facto guarantee by the financial institution.
"The bank had to hold an internal credit screening meeting to approve the payment guarantee but it did not follow the rules. In addition, it did not record the transaction on its books," an FSS official said.
"It seems the bank did it in an irregular way because it believed the deal would fall through if it went through the proper procedures," he added.
What is of concern is that Woori is likely to face additional losses due to the prolonged stagnation of the real estate market.
"We plan to send an inspection team to figure out the exact size of the insolvency as there is the possibility that more loans will turn sour amid the sluggish property market," the FSS official said.
Market analysts said that the incident has exposed the weakness of Woori Financial Group's credit risk management as it came after Kyungnam Bank was punished for irregular payment guarantees not long ago.
"It is very unusual for banks not to follow the proper procedure when dealing with financing in the real estate area. In particular, the bank deserved criticism in that it did not make public such losses," another bank official said, asking not to be named.
The watchdog conducted a comprehensive investigation into the bank in June last year, and penalized several senior managers and employees involved in the incident.