Police Raid Woori Bank in Korea on Construction Loans

Police raided Woori Bank, the lending unit of South Korea’s third-largest financial company, to investigate the role of employees in construction loans that may turn sour.

The police began searching Woori Bank’s headquarters in Seoul at 10 a.m. today after the lender asked authorities to examine real estate project financing loans, spokesman Jung Hee Kyung said today by telephone.

South Korea plans to spend 2.8 trillion won ($2.3 billion) to acquire impaired construction loans from small savings banks and lenders have been told to set aside an additional 2.2 trillion won in reserves to help construction, shipbuilding and shipping companies restructure debt. The police probe comes as the government prepares a plan on how to privatize Woori Finance Holdings Co., the bank’s parent company.

“The morale and reputation of some Woori Bank employees will be hurt by this, but I don’t see it affecting earnings,” said Han Jeong Tae, an analyst at Hana Daetoo Securities Co. in Seoul. “This is a case of corruption by individuals and I don’t think it reflects wider risk at Woori Bank or its parent.”

Woori Finance shares rose 3.9 percent to 14,650 won in Seoul today, compared with a 1.3 percent gain in the benchmark Kospi stock index.

Privatization Plan

The Financial Services Commission said last week it would complete discussions by the end of this month on plans to privatize Woori Finance. The government holds a 57 percent stake in the company.

The police investigation today coincides with the Financial Supervisory Service’s examination of Woori Finance’s Kyongnam Bank unit after learning that employees in the structured finance division used the lender’s seal inappropriately for debt guarantees. The company said in June it was monitoring the Kyongnam case probe and would take appropriate action after the regulator makes its conclusion. Jung declined to comment on this case today.

Woori Finance holds 99.9 percent stake in Kyongnam and owns all of Woori Bank.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

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