In the middle of the recent chaos of financial accidents, KDB is suspected to be raising insolvent loans to STX.
Accordingly, KDB executives will inevitably be held liable. KDB, however, claimed that they as a financial policy institution lent legitimate funds to STX Offshore and Shipbuilding, answering to demands from the financial authorities.
On June 23, the Financial Supervisory Service (FSS) found problems in KDB loans to STX after comprehensive investigation into KBD, a main creditor of STX, and recent additional investigation as well.
As a result, relevant disciplinary actions will be taken to KDB next month. An official in the financial authorities said they found insolvency evidence regarding KDB loans to STX, and the personnel in charge will be punished. He also mentioned that the punishment level is not determined yet.
KDB said that the FSS re-investigated all the loans to STX and its ex-Chairman Kang Duk-soo, but their loans were raised legitimately following demands from the financial authorities, which should not be a problem.
According to the Supreme Prosecutors’ Office, ex-Chairman Kang is suspected of misappropriation of 284.1 billion won (US$278.9 million) and embezzlement of 55.7 billion won (US$54.7 million). He is also charged of borrowing 900 billion won (US$883.6 million) via fraudulent accounting worth of 2.3264 trillion won (US$2.284 billion), and issuing 1.750 trillion won (US$1.719 billion) worth of corporate bonds. STX Offshore and Shipbuilding is accused of 326.4 billion won (US$320.6 million) in fraudulent accounting since 2009, when the recession in the shipping industry hit the group.
STX Offshore and Shipbuilding borrowed 900 billion won (US$883.6 million) from banks through fraudulent financial statements. Their main creditor KDB is alleged to have done careless loan screening by the financial authorities.
KDB recorded the very first loss in 13 years due to the insolvency of STX, and the loss amount reached 1.400 trillion won (US$1.375 billion). As STX Group, once the 13th biggest conglomerate in Korea, and its affiliate companies face financial difficulties, KDB had to provide them financial support as well as save allowances for bad debt. Last year’s allowances for bad debts of KDB were 1.7731 trillion won (US$1.7415 billion), but with bad debt expenses of 2.200 trillion won (US$2.161 billion), a 990.6 billion won (US$972.9 million) increase from 2012.
The Supreme Prosecutors’ Office is investigating the Korea Trade Insurance Corporation (K-Sure) as well. K-Sure also lent STX 400 billion won (US$392 million) based on a false financial statement in June 2009.
The financial watchdog is currently conducting a special investigation into KDB related to insolvent loans to Chonghaejin Marine in relation with the current Sewol ferry disaster.
During the first quarter of this year, KDB took disciplinary actions to their own employees who did bad jobs in credit approval applications, loan commitment statements, and collateral security establishment company selection.
In addition, they found internally that credit preservation review, credit approval procedures for newly incorporated companies, and follow-up management are carelessly done. Thirty-four cases of negligent credit approval were reported. It was also pointed out that credit counterparties were not appropriately selected either.