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[Newsmaker] Loan scandal slaps KT in the face

The head office of KT ENS in Pangyo Techno Vally in Gyeonggi Province (Yonhap)
The head office of KT ENS in Pangyo Techno Vally in Gyeonggi Province (Yonhap)

Incoming president Hwang Chang-gyu of the embattled telecom company KT Corp. faced his first test last week as chief executive after the discovery that a KT affiliate was involved in a loan scandal.

KT ENS, a KT affiliate specializing in network integration, will be subject to an extensive probe this week on the allegation that one of its employees played a leading role in a large-scale loan fraud case involving hundreds of billions of won.

The Seoul Metropolitan Police Agency on Sunday arrested a manager-level employee of KT ENS for illegally abetting subcontractors as they took out some 280 billion won ($260 million) in bank loans.

The loans were granted from at least 17 banks and savings banks, including major organizations such as Hana, NH NongHyup and KB Kookmin banks thanks to documents forged by the KT ENS staff. In return, the employee took cash bribes on a monthly basis.

The banks are claiming that KT ENS, and possibly its holding company KT, should be held responsible, as the documents contained a legitimate official company stamp and therefore qualified for loan applications.

But KT ENS denied its responsibility, claiming that the crime was the result of personal misconduct and that the banks should have properly checked whether the suggested documents were genuine.

And so the blame game goes on.

Amid conflicting claims and the ongoing probe, the new KT chief appeared to keep his distance in a sign that the wrongdoing took place under the former leadership.

Despite this stance, he will still have to eventually face the music and come up with a solution to salvage KT’s reputation.

Going back a bit, it’s not just this scandal that Hwang is faced with as multiple events have been weighing on KT.

The most notable is how fast the company has been losing customers. In 2013, KT lost a total of 570,000 customers, most of whom moved to SK Telecom or LG Uplus. More recently, global credit appraiser Moody’s recently cut its credit rating on KT Corp.

Last but not least, the company’s long-held position as the country’s No. 2 mobile carrier is up against the challenge, as industry leader SK Telecom is widening the gap with KT. At the same time, smallest player LG Uplus is coming closer on KT’s heels with its LTE services.

The public ― still reeling from a massive data breach in the banking sector ― is also far from happy to see yet another financial scandal involving a well-known Korean corporation.

Despite their claims that KT should shoulder all the blame, the involved banks may be held partially accountable based on government findings that they had failed to properly assess the loans they were giving out via KT ENS.

By Bae Hyun-jung (