Financial regulators have issued a caution against Korea Exchange Bank for unauthorized lending practices and are poised to levy a fine on the lender.

The Financial Supervisory Service said Wednesday that it has cautioned the bank for breaching banking laws.

The Financial Services Commission is also considering imposing fines of an unspecified value on the bank. It will be holding a panel discussion regarding the issue in the coming weeks.

According to regulatory officials, KEB violated laws banning lenders from demanding excessive collateral when it issued loans to a group of customers.

“While the law requires lenders to hold collateral according to respective lending cases, KEB has urged comprehensive collateral,” an FSS official said.

The comprehensive collateral system had shouldered heavy burdens on borrowers, such as small- and mid-sized enterprises and individuals.

The FSS has discovered that about 70 branches of KEB were engaged in the practice. The watchdog agency said the bank’s headquarters should be held accountable for negligent internal controlling.

Last year, the financial authorities pushed for a law revision under policies to enhance protection of consumer rights.

Under the regulatory sanction of a caution, KEB could also be subject to disadvantages in its future business activities including M&As.

Several of the KEB staff have also faced sanctions including salary reduction and censure, according to the FSS.

The regulatory body has conducted a probe into the bank by dispatching inspectors during the first quarter of the year.

The FSS plans check if similar practices are carried out in other financial service companies.

Meanwhile, regulatory officials are trying to curb unfair lending practices under FSS Governor Kwon Hyouk-se’s initiative.

Major commercial banks have been criticized for forcing borrowers to buy their financial products including deposits, pension and insurance in exchange for lending.

By Kim Yon-se (kys@heraldcorp.com)