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Board of Audit and Inspection. / Yonhap

An audit by the Board of Audit and Inspection (BAI) revealed that the Export-Import Bank of Korea (Korea Eximbank) upgraded the credit ratings of certain borrowers without objective grounds and failed to properly hold accountable those responsible even after incurring losses.

According to the results of a periodic audit of Korea Eximbank released by the BAI on August 18, unsecured loans accounted for 89.2% of the bank's total loan portfolio, or 68.1 trillion won out of 76.3 trillion won. Extending unsecured credit requires credit evaluations based on borrowers' financial conditions and other relevant factors.

When significant financial risks such as excessive borrowing or capital impairment are identified, Korea Eximbank requires credit ratings to be downgraded using 12 filtering criteria. To subsequently upgrade these ratings, clear grounds verified by objective data are required.

However, when the BAI inspected companies whose credit ratings were upgraded over the past five years, 18 firms were found to have received upgrades without objective grounds. Cases were uncovered where negative financial items such as lease liabilities were arbitrarily excluded, or unconfirmed materials such as provisional closing figures and borrower-submitted business plans were used as justification. The estimated losses incurred from these companies totaled 179.12 billion won.

No measures were taken against those responsible. Korea Eximbank decides whether to discipline or seek indemnification from relevant personnel following deliberations by its audit department. Given the discretion involved in credit evaluation duties, personnel may be exempted from liability in the absence of intentional misconduct or gross negligence.

The BAI determined that aspects of the credit evaluation process for the 18 identified companies could be viewed as gross negligence. In particular, while loans to seven of these companies were already classified as estimated losses or nonperforming loans subject to resolution, Korea Eximbank was found not to have conducted deliberations to determine personnel accountability.

A BAI official said, "We notified Korea Eximbank to strengthen internal controls by reviewing the credit evaluation process for 11 of the 18 companies and conducting accountability deliberations for the seven companies where rating upgrades exacerbated losses," adding, "We also urged caution to ensure that credit ratings are not upgraded based on unconfirmed data after rating ceilings have been capped following clear signs of financial risk."

                                                                                                             Choi Min-jun