By Na Jeong-ju
The financial regulator punished Korea Exchange Bank (KEB) Tuesday for taking illegal gains amounting to 18 billion won ($16.7 million) after raising the borrowing rates for loans to small firms without due process.
The violations were committed between June 2006 and September last year when the bank was controlled by U.S. private equity fund Lone Star.
According to the Financial Supervisory Service, the bank raised additional interest rates on corporate loans by up to 1 percentage point arbitrarily without revising loan contracts. As a result, more than 3,000 small and medium firms had to pay additional interest although they were not obligated to do so.
“We ordered the KEB to pay back the money,” an FSS spokesman said. “The punishment was slapped in the form of a disciplinary warning, from which a lender can suffer various disadvantages when doing business here.”
The FSS also disciplined former KEB CEOs Richard Wacker and Larry Klane for negligence. Nine other former and incumbent KEB employees will also face punitive measures, including a salary cut, the regulator said.
The disciplinary measure against KEB came amid a legal dispute between Lone Star and the Korean government over taxes imposed on the proceeds of the company’s sale of KEB to Hana Financial Group last year. How best to handle the private equity firm has emerged as a key task for the Park Geun-hye government because the tax issue has damaged Korea’s image overseas.
The regulator also said it has disciplined the Korean subsidiary of the Hong Kong-based insurance firm America International Assurance (AIA) for its fraudulent customer policy.
The Korean unit allegedly promised to give 2 percent discount on insurance premiums to policyholders who would pay them via electronic transfer services. However, it didn’t fulfill this promise, raking in 2.8 billion won in unjust gains from 2007 to 2011, the FSS said.