`Nonghyup Bank averaged 2 financial accidents per month`

`Nonghyup Bank averaged 2 financial accidents per month`. April. 24, 2011 23:04. achim@donga.com redfoot@donga.com.

“Our capacity to adapt to information technology has clearly deteriorated. In some cases, staffers have not adequately learned computing work processes. We haven`t confirmed essential things. Overall, we were negligent in internal control.”

Nonghyup Bank held a “2011 training session for staffers in charge of oversight of compliance with laws and regulations” at its Seoul headquarters Friday. Convened amid a chaotic and gloomy mood due to an IT network crash at the bank, participants started the session with a highly critical self-reflection and atonement.

In attendance were about 200 bank workers who oversee whether its executives and employees comply with laws and regulations.

Statistics of “internal accidents,” which a presenter only disclosed to those staffers, suggested that Nonghyup was a “landmine” of accidents even before the latest network crash. According to those in charge of legal compliance oversight, the amount of funds involved in financial accidents in the bank’s three business sectors of credit, agricultural economy and livestock economy, reached 290 billion won (268 million U.S. dollars) last year, up a whopping 64 percent from 177 billion won (164 million dollars) in 2009.

The amount exceeds the 263 billion won (243 million dollars) in problematic funds incurred by Nonghyup in 2008, when the number of financial accidents surged due to the global financial crisis. The problematic funds included losses caused by both bank staff and clients.

Of last year`s figure, money deemed irrecoverable even after problems were resolved more than doubled from 75 billion won (69 million dollars) in 2009 to 155.4 billion won (144 million dollars).

In the credit business, the number of financial accidents increased from 15 in 2009 to 24 last year, including embezzlement of customers’ money by staff, accounts opened through fabricated personal ID cards, or non-performing loans due to lack of proper reviews of borrowers. This means that about two accidents occurred per month in Nonghyup`s financial business alone.

The losses resulting from such cases also surged from 1.4 billion won (1.3 million dollars) to 11.1 billion won (10 million dollars) over the period.

With Nonghyup, or the National Agricultural Cooperatives Federation, experiencing a flurry of accidents, the amount of its non-performing loans for real estate project financing reached 1.51 trillion won (1.4 billion dollars) late last year, ranking second after Woori Bank`s 1.99 trillion won (1.84 billion dollars).

A person in charge of legal compliance oversight at a commercial bank said, “The number of financial accidents at commercial banks reaches five to six per year at most, with the number of financial accidents declining overall,” adding, “The surging number of financial accidents at Nonghyup suggests major loopholes in its internal control.”

Statistical data on internal accidents is a matter of high-level security that critically affects a company`s credibility. Even the Financial Supervisory Service does not disclose such data because customers could bolt or withdraw money en masse if such information is made public.