Welcome Savings Bank discovers $67mn loan fraud

(Yonhap)

Welcome Saving Bank Co., the industry’s fourth-largest player, discovered a fraud incident involving auto parts accounts receivable–backed loans worth nearly 100 billion won ($67.16 million).

According to financial authorities and industry sources on Wednesday, Welcome Savings Bank detected a fraud involving auto parts accounts receivable–backed loans late last year and voluntarily reported it to the Financial Supervisory Service.

The estimated damage amounts to about 90 billion won.

The incident exploited a structural loophole in the industry centering around imported car parts companies, sources said.

Typically, when a parts supplier issues a repair cost estimate through the Korea Insurance Development Institute’s AOS system, the savings bank extends a securitized loan based on the accounts receivable.

After the vehicle repair is completed, the insurer pays the repair cost, or insurance proceeds, to the savings bank.

However, some parts companies are believed to have established special purpose companies (SPCs) and fabricated estimates to obtain securitized loans fraudulently.

Welcome Savings Bank is said to have extended approximately 300 billion won in such securitized loans over several years to the parts companies in question and repair shops.

However, due to the short-term nature of these loans, about 200 billion won has already been recovered, and the remaining 90 billion won has been classified as assets with potential losses, with full loan-loss provisions set aside.

The bank immediately suspended all related lending upon detecting the incident and promptly requested a police investigation.

It also initiated provisional seizure procedures against the assets of the fraudulent parts companies, according to sources.

Currently, efforts are underway to identify suspicious loans within the 90 billion won balance.

The Financial Supervisory Service conducted an on-site inspection immediately after receiving the report and has launched a comprehensive review to determine whether similar cases exist at other savings banks, sources said.

Aside from Welcome Savings Bank, it has been revealed that KB Savings Bank Co. has recognized 4.5 billion won as losses and fully provisioned the amount.

In January, KB Savings Bank disclosed that it detected a loan delinquency suspected to involve borrower deception.