The financial regulator said Wednesday it has found that NongHyup Bank extended loans to its largest shareholder at excessively lower interest rates as a favor.
The Financial Supervisory Service (FSS) discovered through an inspection into the bank that it extended a loan worth 6.35 trillion won (US$5.67 billion) to National Agricultural Cooperative Federation, or NongHyup, in March last year.
NongHyup Bank also took the liberty of lowering the interest rate for its controlling stakeholder, the FSS said. It applied an annual rate of 1.75 percent for about a third of the entire loan and 5.27 percent for the remainder, saving NongHyup interest costs of more than 100 billion won.
NongHyup underwent a major reshuffle between 2011 and 2012 as it was separated into the agro-focused holding company and the financial group. NongHyup Financial Group Inc. was launched on March 2, 2012, with seven affiliates, including the banking unit, under its wing.
The FSS said although the NongHyup is no longer counted as a financial company since the group's separation, the bank unit treated it like one for the loan assessment and approval.
The regulator also found that NongHyup Bank suffered huge losses worth 700 billion won from project financing loans. In 2006-8, the bank extended such loans to seven different businesses engaged in project financing without thorough assessments on their finances and repayment ability. (Yonhap News)
