[Newsmaker] Internal strife simmering at KB Financial

The falling credibility of KB Financial Group shows no sign of abating, even appearing to further deteriorate amid escalating internal troubles.

The country’s largest banking group by assets struggled in 2013 after its flagship unit, KB Kookmin Bank, was rattled by a series of scandals involving illegal loans, and irregularities at its overseas branches.

It suffered another serious blow earlier this year after its credit card unit was involved in a massive data leak scandal. And now, the group and its banking unit are under fresh scrutiny by the country’s financial watchdog, this time over what appears to be a deeply rooted dispute between their top two officials.

The Financial Supervisory Service is currently conducting an unusual full-scale review of the bank’s overall management system.

The investigation first began after an auditor of the bank questioned a decision by the group’s board of directors to adopt a new computer system, saying it carried serious risks.

The auditor reported the case to FSS after the board dismissed him and decided to push ahead with the 200 billion ($195 million) project to change the bank’s system.

The underlying problem, analysts say, is not the digital system itself, but the internal power struggle it points to, an issue that indicates a serious problem with the internal control system of the holding company and its largest affiliate.

KB Financial Group chairman Lim Young-rok is believed to be influencing the board members while KB Kookmin Bank president and CEO Lee Kun-ho is reported to strongly object to the board’s decision.

“There is no discord. We are in the process of determining the best solution for our bank,” the bank CEO Lee told reporters last week, dismissing the allegation that he was feuding with Lim and other board members.

But the CEO is now considering filing a petition with a local court if the board goes ahead with the new computer system, an insider closed to the matter said.

The management conflict and hostile relationship between the two members of the KB elite may be understandable, given the executives’ different backgrounds, experts say.

Lim and Lee both started their careers outside of the banking group. They are, in fact, typical top managers parachuted into a company by the government or other state-run agencies. Lim served as vice finance minister before taking the helm of KB group while Lee taught at the Korea Development Institute before joining the KB bank in 2011.

Meanwhile, the FSS announced Sunday that it would expand its in-depth inspection of KB Financial Group and its affiliated firms until the end of next month in an apparent move to improve on the ineffectiveness caused by internal disputes between the top management of the bank and its holding company.

By Oh Kyu-wook (596story@heraldcorp.com)