Korea’s financial watchdog said Thursday it is investigating several banks for any irregularities or rule violations in a large-scale loan fraud implicating an employee of a KT Corp. affiliate.

The Financial Supervisory Service said the employee, surnamed Kim, at KT ENS Co. affiliated with KT Corp., the country’s No. 2 mobile operator, has taken out some 280 billion won ($260 million) in loans from Hana, Kookmin and several other banks.

According to the watchdog, the banks had extended the loans to a special purpose company set up by KT ENS’s subcontractors with receivables as collateral.

The employee was found to have withdrawn part of the loans from the banks, raising suspicions that the subcontractors might have colluded with the tech firm employee. The subcontractors supplied mobile handsets to KT ENS, and its receivables were transferred to the SPC.

The FSS said the documents submitted to the banks were fake and receivables were not real.

Investigators have Kim in custody for questioning and said they will also call in the chiefs of six subcontractors suspected of collusion in the fraud.

The watchdog said the case would not incur losses on the banks as the loans were guaranteed by other financial firms such as brokerage firms.

The probe came amid growing pressure on local financial institutions to step up internal supervision after a series of mishaps.

Last month, the watchdog revealed that some 20 million clients’ personal data, including bank account numbers, addresses and credit ratings, have been leaked from the three card issuers ― KB Kookmin Card Co., NH Nonghyup Card Co. and Lotte Card Co. ― drawing public fury for lax management. (Yonhap)