IBK’s China Branch Suffers 83.4 Billion Won Financial Scandal… Undetected for Half a Year

Repayments Settled Through External Platform Accounts

Failure to Detect Account Changes and Falsified Repayment Information

A major financial incident amounting to approximately 80 billion won occurred at the Chinese branch of IBK (Industrial Bank of Korea). It has been pointed out that lax internal controls exacerbated the extent of the damages.

According to documents submitted by the Financial Supervisory Service and IBK to Shin Dongwook, a lawmaker belonging to the National Assembly’s Political Affairs Committee, IBK’s Chinese branch entered into an agreement with a local non-bank financial institution, referred to as Company A, to execute non-face-to-face loans for local borrowers.

Company A handled borrower recruitment and principal and interest repayment work through an online lending platform, Company B. While IBK directly disbursed loans, the principal and interest paid by borrowers were settled afterward through an account designated by Company B.

Company B exploited this repayment structure by arbitrarily changing the designated account and embezzling the repayments paid by borrowers, which were not delivered to IBK. Although no settlement funds were sent, falsified information was processed on the system to make it appear as if repayments had been made normally.

As a result, some borrowers were classified as outstanding or delinquent despite having repaid their loans, leading to damage such as debt collection and lowered credit ratings. IBK, likewise, was unable to recover the principal and interest. The amount of the financial incident disclosed by IBK on July 15 was 83.376 billion won.

There are also questions about the effectiveness of internal controls during the detection process. IBK claimed to the lawmaker’s office that it cross-checked principal and interest repayment records and actual deposit amounts daily, but in reality, it only became aware of the issue after June 24, when no settlement funds were received and the number of borrower complaints began to rise.

The period of the incident reported to the Financial Supervisory Service was from December 1 of last year to June 29 of this year. Although the problem continued for about seven months, IBK’s own inspections failed to detect it.

Five Chinese financial institutions had already removed Company B from their list of partner organizations between March and April, but IBK failed to timely detect these red flags. Only after the incident was identified did IBK establish a separate system allowing borrowers to check or make early repayments directly, bypassing Company B.

Although it has been two months since IBK detected the incident, the bank has not yet confirmed the actual incident amount, recoveries, or estimated losses, citing an ongoing local investigation.

Lawmaker Shin stated, “IBK disbursed loans directly but left the principal and interest collection to an external platform, only setting up a direct repayment system after this 80 billion won incident occurred. The inadequate internal controls of overseas branches and the belated oversight by the Financial Supervisory Service, which is waiting solely for the final report, are both serious problems.”

This content was produced with the assistance of AI translation services.