TOKYO: Japan’s financial regulator on Thursday ordered South Korea’s Kookmin Bank in Japan to suspend new transactions for four months from September 4, citing “improper loans” it has made.

The Financial Services Agency said it also demanded the Japanese operations of the major South Korean lender rebuild their risk management and internal control systems.

In a statement, the agency said it found successive local executives had “organised and executed many improper loans” using practices that included padding an applicant’s collateral and taking suspected kickbacks from borrowers.

The Japanese operation had also been lax in enforcing measures to prevent loans to “anti-social forces,” the statement said, using a widely understood euphemism for organised crime syndicates.

“The agency has confirmed fundamental problems concerning the operation and administration of the business,” the statement said.

It added that the agency ordered the bank to submit a business improvement programme by September 29 and immediately implement it.

The Japanese action came as South Korea’s Yonhap news agency reported the bank had fallen foul of home regulators.

It said lax supervision of employees had led to “massive embezzlement and illegal loans”.

“The watchdog concluded that 51 employees had pocketed a combined 11.2 billion won ($11 million) through fake transactions of national housing bonds between March 2010 and November 2013,” Yonhap said.

It also found that “18 officials working in the bank’s Tokyo branch were accused of having extended an estimated 530bn won worth of loans to Japan-based Korean businesspeople with lower credit ratings,” Yonhap reported.

Published in Dawn, August 29th, 2014