Old habits die hard

A computer network disorder crippled NH Bank’s online banking and automated teller machine (ATM) services for nearly two weeks in April last year.

New-look Nonghyup fails to impress marketsIn introducing a financial holding company built on its banking and insurance services in March, the National Agricultural Cooperative Federation (Nonghyup) declared it was opening a new era.

In a lavish ceremony to mark the occasion, Nonghyup Chairman Choi Won-byung talked in length about how there was a grand future in the vision of a quicker and more efficient organization that would shake hierarchies across financial services markets.

Fast forward to the nondescript month of May and the brand new Nonghyup is pretty much looking like the old one after the last two months brought a mind-boggling mix of ineptitude, controversy and embarrassment. And this pretty much assures the organization will go under the knife again under this government or the next.

The decision to separate Nonghyup’s financial operations from its agricultural marketing and supply services was backed by the logic that it needed more freedom to improve profitability and get more out of its massive network of banks and other services outlets.

More money from its banking and insurance businesses will eventually benefit farmers and agricultural cooperatives Nonghyup is supposed to help, claimed Choi and government officials who pushed the changes.

The Nonghyup Financial Group even got its own chairman, Shin Choon-shik, whose presence was to symbolize the company’s business-centric approach and autonomy from Nonghyup’s farming support functions.

But in preparing a full-scale investigation up and down Nonghyup’s financial units, the Financial Supervisory Service (FSS) is questioning whether the group’s new look is merely a facade used for covering up dirty old habits.

Despite all the talk about independence and expertise of the financial services divisions, there is reason to suspect that Nonghyup’s old headquarters are still calling the shots for Nonghyup Financial Group, which increases the risks for bad management and irregularities, FSS sources say.

Compared to other commercial lenders, NH Bank, the main business unit of Nonghyup’s financial holding company, has a greater proportion of bad loans, higher delinquency rates and more exposure to the country’s toxic real estate and construction market.

The fact that NH Bank was among the few commercial lenders backing the construction projects of the troubled Poonglim Industrial, which is now under court receivership, has stoked fears about flawed decision making and irresponsible lending.

FSS investigators are also vowing to get to the bottom of what’s wrong with Nonghyup’s computer system, which interrupts NH Bank’s transaction networks and online services seemingly every other month.

“There will be a comprehensive investigation on NH Bank during this month and we expect the process to take more than a month,’’ said a source from the financial regulator.

“This will be more than just a regular banking check-up and the size of the investigation team will be 50 percent bigger than we normally arrange for banks. Investigators will not only be sent to the financial units, but the central organization of Nonghyup too as that is where the data network and information technology functions are handled. We will try to gather evidence on the governance-related problems as well.’’

A NH Bank official, who didn’t want to be quoted, denied speculation that the Nonghyup Financial Group is being controlled remotely by puppet masters at the federation’s headquarters.

With seven companies under its wing involved in credit cards, securities, futures trading and asset management aside of banking and insurance, the group controls around 240 trillion won (about $208 billion) in assets based on 2011 data. This makes it the country’s fifth largest financial group behind KB Financial, Woori Financial, Hana Financial and Shinhan Financial.

While Nonghyup Financial Group makes the industry top-five in size, it has an undisputed lead in the table for consumer complaints. According to FSS records, the country’s 17 commercial banks experienced around 2,000 disputes with customers last year and more than 400 came from NH Bank. About 28 of the cases developed into lawsuits and the lender was involved in seven of them.

NH Bank was dealt irrevocable damage to its business credibility in April last year when a malfunction of its computer network crippled most of its financial services, including online banking and automated teller machine (ATM) systems.

Nonghyup has attempted to soothe the anger of its NH Bank customers by promising to spend more than 7 billion won to compensate for their damages and more than 500 billion won until 2015 to improve its computer system.

Despite the speechifying, NH Bank’s online banking service experienced another abrupt shutdown the very next month. Computer problems also caused disruption in processing transactions of debit cards in December. <Korea Times/Kim Tong-hyung>

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