Euromoney, July 10 2018
South Korea has always done scandals very well and its banking sector is in the middle of an absolute doozy at the moment.
On June 17 prosecutors indicted 38 senior officials at six banks for hiring irregularities. There are 695 separate cases of hiring malpractice alleged, 87% of them by officials at either KB Kookmin or KEB Hana; also very much in the mix are Woori, Busan, Daegu and Kwangju banks.
There are some very senior names on the list, among them KEB Hana president Ham Young-joo and former Woori chief executive Lee Kwang-goo, who quit in the early stages of the furore last November.
The authorities went so far as to say they wouldd have KB Kookmin’s head Yoon Jong-kyoo and Hana Financial Group chairman Kim Jung-tai in there too, but they couldn’t find enough evidence.
That’s not enough for Kookmin’s notoriously snarling union, which wants Yoon to quit anyway.
The one big local name that is missing – Shinhan – shouldn’t rest easy: prosecutors just say they haven’t finished investigating that bank yet and the Financial Supervisory Service (FSS), the national regulator, said in May it had uncovered 22 cases of suspicious hiring there, 13 of them involving children of key executives.
And even the FSS itself has not survived unscathed. The whole scandal, which really began when Woori was accused of hiring malpractice last October, truly gathered pace when FSS governor Choe Heung-sik resigned in March over allegations that he pushed the appointment of the son of a friend during his time as president of Hana Financial Group in 2013. Choe denied having any influence, saying he simply passed along a name, but quit anyway amid the resulting noise.
It is the sort of wide-reaching scandal that South Korea excels in, routinely jailing chaebol heads or former presidents, and it stems from president Moon Jae-in’s attempts to stamp out widespread cronyism and nepotism in the country.
Typical allegations include senior executives directly intervening to manipulate test scores to get well-connected children positions at banks. Former Busan Bank head Sung Se-whan, for example, is alleged to have done so on the tests of a son of a Busan Metropolitan City official in 2012, in return for assistance in winning business for the bank. And Daegu Bank’s former chief Park In-gyu is alleged to have manipulated test scores seven times and to have ordered the destruction of evidence after the FSS announced its crackdown.
If that is not enough, the Korea Times alleges that Ham at KEB Hana, realizing the Supreme Prosecutor’s office was seeking an arrest warrant against him (subsequently denied), urged the bank’s employees to write petitions for him, talking about his contributions to Korean banking and including his nickname of “countryman.”
The Korean Federation of Banks, the industry association, is developing new guidelines it hopes its 19 member banks – including all the big ones – will sign. The guidelines include the re-introduction of written exams and blind recruitment where officials don’t know the background of applicants before interviews. But by the time these are implemented it is entirely possible most of the top level of Korean banking executives will have gone.
In the background is a bit of history. Choe, before becoming FSS governor was president of Hana Financial Group, the holding company that owns KEB Hana. It is said that Kim Jung-tai, the current chairman of Hana Financial Group, was responsible for Choe’s departure from the bank. The two are understood not to get along.
Have the actions over the last six months stemmed in part from that history? If so, that escalated quickly.