KB Kookmin Bank, the nation’s second-largest lender, is facing what some financial market analysts said is the biggest crisis ever since its foundation in 1963 for its alleged involvement in a widening financial corruption scandal.

Seoul prosecutors launched an investigation on Wednesday into the bank on suspicions of its employees’ involvement in illegal loans and embezzlement of customers’ deposit money, and raising slush funds.

Later in the day, bank CEO Lee Kun-ho apologized to the public for causing concern about the bank and promised to compensate those who faced losses because of the embezzlement case.

Speaking at a news conference, Lee said his bank would promote tough reform to prevent a recurrence, and expressed his willingness to take responsibility for the corruption scandal, if necessary.

At the heart of the probe, financial sources said, will be the bank’s alleged embezzlement of the national housing fund, a reserve set aside for low-income earners.

“We had said 9 billion won ($8.5 million) was embezzled, but now it seems likely that the amount surpasses 10 billion won,” said an official from the Financial Supervisory Service, indicating that the number of KB Kookmin Bank employees involved in the scandal may also rise.

Before the prosecution started a probe, the FSS had launched a special audit of alleged wrongdoings committed by the bank.

In addition, the FSS suspects that the bank set aside at least 50 million won in a slush fund by issuing unauthorized loans through its Tokyo branch.

The fund was found to have been used to purchase gift cards at major department stores, possibly for illegal purposes such as lobbying to government or political officials, financial sources said.

The bank recently set up a management reform committee chaired by the bank’s new chief executive Lee Kun-ho, who was summoned to the FSS and reprehended for lax supervision.

The prosecution’s launch of a probe into KB Kookmin Bank is expected to deal a blow to the lender’s image as a leading bank in Korea.

The investigation may have a negative effect on the bank’s next quarterly profit, according to market observers. In the third quarter this year, the bank earned a 338.2 billion won net profit, down 11.5 percent on-year.

By Chung Joo-won (joowonc@heraldcorp.com)