Kookmin Bank CEO Resigns After Reprimand by Watchdog

Kookmin Bank Chief Executive Officer Lee Kun Ho resigned today after being reprimanded by South Korea’s financial watchdog following a series of missteps at his bank and parent KB Financial Group Inc.

His resignation is immediate, according to an e-mail from the bank, the country’s largest lender. Earlier today, the Financial Supervisory Service issued a “disciplinary warning” to Lee, 54, over issues relating to changes in the bank’s computing system. The regulator suggested to the Financial Services Commission, which oversees the FSS, that the FSC issue a similar warning to KB Financial Chairman Lim Young Rok.

Lee’s departure follows months of scrutiny over matters ranging from leaks of client data to illicit loans in Japan and internal wrangling over the computer system changes. Kookmin Bank’s labor union had been pressing for the two executives to step down, and members went on strike yesterday as part of action across the financial industry.

Whether Lee’s resignation has an adverse impact on the company depends on who replaces him, according to Michael Na, a Seoul-based analyst at Nomura Holdings Inc. “If they elect someone from the bank, it should be positive,” Na said by phone today. “If not, it’ll be a continuation of more noise.”

Shares of KB Financial fell 0.9 percent today, paring this year’s advance to 0.8 percent. The Kospi Financial index lost 0.2 percent and is up 9.8 percent in 2014.

‘Appropriate Judgment’

“I have fulfilled my responsibility as the bank’s CEO,” Lee said in the statement. “I believe the regulatory authority made an appropriate judgment of my actions.”

KB Financial expressed regret over the FSS’s warning in a statement today and said it will make efforts to clarify any misunderstandings related to the computing system. The firm will run an emergency management system for the time being, KB said in the statement, which contained no comment on whether its Chairman Lim will also step down, or on Lee’s possible successor.

Lee became CEO of Kookmin Bank in July 2013 after spending almost two years overseeing its risk management unit. Prior to joining the lender, his roles included teaching at the Korea Development Institute.

Financial Supervisory Service Governor Choi Soo Hyun said that Lee and Lim failed to recognize the gravity of the issues at their companies. The watchdog raised the penalty against the executives from a “warning” issued by a disciplinary panel under the FSS last month.

“Serious problems in the group’s internal controls, such as false reports and distorted agendas in board meetings, were exposed during the process of the information systems change,” Choi said in an e-mailed statement.

Japan’s Financial Services Agency last month suspended Kookmin Bank from conducting new transactions at its branches in the country. It imposed the four-month ban after finding that some former Tokyo branch managers and employees inappropriately structured loans to stay within approval limits, falsified collateral documents and received cash from borrowers.

(Corrects second paragraph of Sept. 4 story to say regulator had issued suggestion on warning for chairman.)
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