Posted June. 22, 2010 12:15,
Woori Bank provided a guarantee for project financing loans worth more than four trillion won (3.41 billion U.S. dollars) for six years without undergoing the proper procedures, the countrys financial watchdog and financial institutions said Monday.
The bank suffered about 200 billion won (170 million dollars) in losses as of June last year, and will inevitably face additional losses of hundreds of millions of dollars.
Wooris credit division allegedly signed an agreement to buy asset-backed commercial paper worth 4.23 trillion won (3.58 billion dollars) issued by developers from June 2002 to June 2008. The agreement was the banks promise to repay the amount or convert it to loans if developers could not repay the paper, a de facto guarantee by the bank.
"If a bank provides a guarantee, it must hold an internal meeting for credit but Woori turned out to have skipped the process," a Financial Supervisory Service source said. "It seems it used expediency to provide a guarantee because it believed the deal would be rejected if it went through the proper procedures."
The financial watchdog said Woori signed a purchase agreement to involve a savings bank in the initial stage when it began a project financing project to increase its assets. With the outbreak of the 2008 global financial crisis and rising defaults of developers, however, bad loans returned.
The banks losses reached 194.7 billion won (165.8 million dollars) in June last year, the watchdog said.
"Weve already put aside 200 billion won (170.3 million dollars) in loan loss reserves for this year, a Woori source said. Additional losses could occur because loans to nine developers remain at 942.2 billion won (802.5 million dollars)."
The watchdog conducted a comprehensive investigation into the bank in June last year, and penalized the executives responsible and former CEO Hwang Young-gi and Park Hae-chun. Additionally, members of the banks credit project team were suspected of embezzlement and Woori was informed of this.
As punishment, the bank cut the pay of the credit project team leader and former and current project financing team leaders who were in charge of the signing, and sought criminal charges for embezzlement against former and current team leaders.
Experts say Woori Financial Group, the parent group of the bank, has a problem in its risk management system. The group provided an expediency guarantee following the lead of Kyungnam Bank, which offered a guarantee of 400 billion won (340.7 million dollars) by forging a seal.