Poor governance saps Kookmin

KB Kookmin Bank used to be the leading bank in Korea in terms of size and profit. However, the lender fell into disgrace after a series of mishaps and incidents of corruption.

Banking industry analysts and market watchers say that Kookmin’s chronic and fundamental problems in governance and organizational structure are to blame for the catastrophe.

The lender was created through the merger of Kookmin Bank and Housing & Commercial Bank in 2001. In 2008, KB Financial Group was the parent company.

Even years after the merger, it is said there remained factional conflicts between workers from the two banks ― former Kookmin workers supported their own colleagues for promotions and in other evaluations, while former Housing & Commercial workers in turn, backed their old workmates.

For the posts of chairman of the group, financial bureaucrats and policymakers’ close aides were appointed.

One source in the banking industry said that the problem comes from Kookmin’s lack of united corporate culture.

“Kookmin has good manpower and assets but it shows poor performance and such troubles. It is due to internal spilt resulted from the appointment of outside figures, such as policymakers’ aides, for top management positions,” he said on condition of anonymity.

“Internal control and other capability come from a company’s corporate culture. But such internal conflicts prevent Kookmin from creating a culture. There is difference between a bank led by people who know the culture through long-term services in the banking industry and another led by people who do not,” he said.

Kim Woo-jin, director at the Korea Institute of Finance’s Bank Management Research Center, said that the short tenures of Kookmin and KB Financial’s heads are a factor preventing governance continuity in the lender. Compared to KB, chiefs of Hana and Shinhan financial groups have had longer terms because they have been reappointed.

He also said exchanges between employees of the two factions are not active. “If workers know about each other well, the chance is high that they notice other staffers’ unusual activities or wrongdoing. But workers in one faction do not pay attention to those in another.”

Kim also said that as Kookmin is a large company, the number of workers per compliance officer may be relatively small compared to other banks.

“All these factors were mixed and have led to the troubles,” Kim said.

The latest problem was embezzlement alleged to have been committed by a mid-level employee. A man with the surname Yun, was allegedly entrusted with managing about 24 billion won over a period of years after 10 or so of his relatives and friends asked him to do so.

When those people recently asked Yun to return the money, he refused and said that not a penny remained. The group of 10 then filed a complaint with the bank.

The bank is having difficulty in investigating Yun because he hid about half of the money in bank accounts outside of Kookmin. Yun keeps saying that he does not remember what happened with the money, according to the bank.

“We are still looking into the case and it is early to say Yun if embezzled the money. After our own inspection, we’ll take further steps such as reporting to the police,” a Kookmin official said.

A day before the case became publicly known, the bank said another employee allegedly issued a fake deposit receipt for 970 billion won.

The worker, Lee, issued it upon request of a real estate developer who needed it for business purposes. The format of the receipt was fake and he used his own seal instead of the lender’s official one.

The bank asked the prosecution to investigate the worker.

Following the recent cases, the Financial Supervisory Service decided to launch a comprehensive inspection into the lender next month, earlier than its previous schedule of latter half of this year.

Before the cases, some staffers were accused of embezzling about 11 billion won by forging documents related to national housing bonds. That made the bank unable to sell new bonds for three months from this month to June.

Employees of the lender’s Tokyo branch allegedly used borrowed names to extend more than the legally-permitted amount of loans, some 500 billion won. They allegedly received high commission fees for the loans, and it is suspected that the money may have been used to create slush funds. By Kim Rahn The korea times