Financial Supervisory Service (FSS) Gov. Lee Bok-hyun speaks at a press briefing on the results of the 2024 regular inspections of financial holding groups and banks at the FSS headquarters in Seoul, Tuesday. Yonhap

The Financial Supervisory Service (FSS) uncovered a total of 482 cases of inappropriate loans amounting to 387.5 billion won ($265 million) at Woori Bank, KB Kookmin Bank and NH NongHyup Bank, the financial watchdog said Tuesday.

The FSS announced the results of its 2024 regular inspections of financial holding groups and banks, revealing that Woori Bank had 101 cases of improper loans totaling 233.4 billion won, while Kookmin Bank and NongHyup Bank had 291 cases amounting to 89.2 billion won and 90 cases totaling 64.9 billion won, respectively.

Of the 233.4 billion won at Woori Bank, 73 billion won was found to have been improperly loaned to relatives and associates of Son Tae-seung, former chairman of Woori Financial Group. This figure represents an additional 38 billion won on top of the previously reported 35 billion won.

"The outdated governance structure of the banking sector and the occurrence of large-scale financial scandals have once again highlighted serious internal control deficiencies," FSS Gov. Lee Bok-hyun said during a press briefing.

"Bank executives and employees have been found to exploit bank resources for [their] private interests and specific groups, engaging in improper loans and other illegal or unethical business practices without hesitation."

Woori Bank has been under investigation by the prosecution for granting improper loans to corporations and individual businesses connected to Son from April 2020 to January of last year.

In addition to the previously identified 35 billion won in suspicious loans linked to Son, another 38 billion won was uncovered during the FSS inspection.

Of the loans, 45.1 billion won, accounting for 61.8 percent, were issued after the current management took office, and 33.8 billion won, or 46.3 percent, has already turned into nonperforming loans.

According to the financial watchdog, Woori Financial Chairman Yim Jong-yong and former Woori Bank CEO Cho Byung-kyu were aware of these improper loans, but failed to report them to financial authorities for five months. As a result, the FSS inspection and prosecution investigation were delayed.

Employees are seen at Woori Bank's headquarters in Seoul, Aug. 27, when prosecutors were conducting a raid in connection with improper loans extended to relatives and associates of former Woori Financial Chairman Son Tae-seung. Korea Times file

Additionally, the newly uncovered 160.4 billion won in improper loans at Woori Bank involved cases where former and current headquarters and branch managers approved corporate loans unrelated to business purposes for short-term performance gains.

Of these loans, 122.9 billion won, or 76.6 percent, has turned into nonperforming loans.

Attention is now focused on how the results of this inspection will impact Woori Financial Group's ongoing acquisition of Tongyang Life and ABL Life. If the FSS lowers Woori's management assessment rating from the current Level 2 to Level 3 or below based on the latest findings, the acquisition of the two life insurance companies could become unfeasible.

Lee vowed to swiftly finalize the management assessment results and submit them to the Financial Services Commission (FSC), the country's top financial regulator, this month.

"We are working to derive the management assessment results separately from the sanction process. If we can notify the FSC of our findings by February, the commission will be able to make a decision by March," Lee said.

Meanwhile, at Kookmin Bank, a total of 89.2 billion won in improper loans were identified. Cases include a team leader at a branch assisting developers and brokers in orchestrating fraudulent loans. This involved selecting fake borrowers based on fraudulent sales contracts and encouraging them to change their business type to sectors where obtaining loans was easier.

The FSS pointed out that there was evidence of monetary kickbacks and entertainment being received in connection with some of these loans.

Similarly, at NongHyup Bank, branch managers and team leaders were caught colluding with brokers and borrowers to inflate appraisal values using fraudulent sales contracts, resulting in 64.9 billion won in improper loans.

The FSS also confirmed that they accepted 130 million won in kickbacks from borrowers in connection with certain loans.

"The decision-making structure centered around financial holding group chairmen was firmly established, and a hierarchical, top-down organizational culture of strict compliance prevailed. As a result, internal controls and other oversight mechanisms struggled to function effectively," Lee said.

The watchdog reported the suspected criminal activities related to large-scale improper loans to law enforcement authorities.

It also plans to impose strict sanctions on the unlawful practices at the three banks and will require all financial holding groups and banks to submit self-assessment plans for review.