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Industrial Bank of Korea (IBK) is under intense pressure following an internal control failure that allowed a third-party platform to siphon off more than KRW83.4bn ($60mn) in customer repayments, the Financial Supervisory Service (FSS) and IBK reported to People Power Party lawmaker Shin Dong-uk, according to Korea JoongAng Daily.
The multi-million-dollar scam highlights serious vulnerabilities in South Korean lenders' international risk management, particularly when relying on external digital channels for overseas credit collection.
The fraud originated at IBK's Chinese subsidiary, which partnered with a local non-bank institution for online loans. IBK issued the money directly to borrowers, but the partner firm used a third-party online platform to collect principal and interest payments.
Instead of forwarding the collected funds to IBK, the platform diverted the cash. It then generated false digital records to make it look like the debts had been settled.
Borrowers who paid back their loans were left with ruined credit scores and collection demands for debts they had already cleared. IBK was left unable to recover the missing principal and interest.
The fraud went unnoticed for seven months, running from December 1 to June 29. IBK claimed it cross-checked daily repayment logs against bank deposits, yet management only caught on when transfers failed and client complaints spiked on June 24.
Local market players were already aware of the platform's risks. Five Chinese institutions cut ties with the operator during March and April, but IBK failed to catch the red flags.
IBK officially reported the KRW83.4bn disruption on July 15. The bank has not yet confirmed the final loss figure or recovery totals. Local authorities are running a criminal investigation into the matter.
IBK responded by building a direct payment channel so borrowers could bypass the third-party system, but critics called the move too little, too late.
"IBK handed over collection duties to an outside platform without a direct backup option until after losing over KRW80bn," Shin said. He added that weak overseas controls and passive oversight by regulators, who simply waited for a final report, represent major operational failures.
The FSS is also drawing fire for doing very little. The regulator tracked exposure updates internally after receiving the report, but it did not request extra documents, summon IBK management, or launch an immediate on-site inspection.
The regulator stated it will review IBK's handling of the situation only after the bank finishes compensating victims and files a final report.
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