Korea opens probe into Woori's loans to ex-chair's relatives

South Korea’s financial watchdog agency said on Sunday it has found that Woori Financial Group, the country's fourth-largest financial holdings group, had improperly lent a combined 35 billion won ($25.6 million) to former Chairman Sohn Tae-Seung’s relatives and the companies they are involved with.

The Financial Supervisory Service (FSS) said that from April 3, 2020 to January 16 of this year, Woori Bank employees disbursed 42 loans totaling 61.6 billion won to Sohn’s relatives and the businesses they are involved with.

The lending includes 45.4 billion won spread among 23 loans to companies in which current and former chief executives and key shareholders are relatives of Sohn.

The remaining 16.2 billion won was executed across 19 loans to nine borrowers who are not Sohn’s relatives but are suspected of having helped his relatives use the money, the FSS said.

Among the total 61.6 billion won, 35 billion won across 28 loans was found to have been improperly disbursed without conforming to lending screening standards and procedures and follow-up processes, the financial watchdog added.

The improper cases include the bank's execution of a loan without strictly verifying a borrower’s documents — suspected of being false — and a loan whose collateral had little value or guarantors with no ability to repay debt.

The bank also violated lending screening and follow-up procedures by completing the processes at a branch without obtaining headquarters’ final approval.

The bank also failed to check supporting documents promptly to detect misappropriation, the FSS said.

Of the total lending, some 26.9 billion won across 19 loans was found to be in default or in arrears as of July 19, the financial regulator added.

Sohn took the bank's helm in 2017 and served as both the holding group’s chairman and the bank’s head between January 2019 and February 2020. He stepped down from the group chair role in March 2023 when his term ended.

Before he took the helm, his relatives and their companies had already borrowed 450 million won.

The financial watchdog said it takes Woori Financial’s improper lending seriously and recognizes that the holding group's and bank's internal control didn’t work properly under the current system, where authority is concentrated with the chairman.

The FSS added it will proceed with the sanctioning process based on a legal review of whether there were violations and conflicts of interest in loan handling and will notify the relevant investigative agencies of any document forgery and fraud by the borrowers.

Write to Hyun-Woo Kang and Jae-Won Park at hkang@hankyung.com
Jihyun Kim edited this article.