Administrative Action against Industrial Bank of Korea, Tokyo Branch

In order to ensure appropriate and sound business operations, review and restructure the Tokyo Branch’s current governance and internal control system in connection with its credit risk management and legal/regulatory compliance, from the following perspectives:

• (1)Clarify the Tokyo Branch’s management stance and responsibilities regarding credit risk management and legal/regulatory compliance (including clarification as to authorities and responsibilities between the headquarters and the Tokyo Branch);

• (2)Restructure and improve the credit risk management function (including a complete restructure of the control system to implement credit screening and management appropriately and strengthen the check-and-balance function, and a review of related internal regulations and sound implementation thereof);

• (3)Restructure and improve the legal/regulatory compliance function (including actions to ensure the thorough understanding and full compliance of branch officers as to laws and regulations and internal regulations, and actions to nurture and improve the awareness of branch officers as to legal compliance);

• (4)Review the audit methodology, frequency, etc. to ensure appropriate and sound business operations of the Tokyo Branch.

Submit to the FSA by July 10, 2015, a plan to improve business operations (“Business Improvement Plan”) pertaining to 1 above and matters described in the notice of inspection results as well as the report prepared by the Tokyo Branch, and implement such plan immediately.

Further, verify and ensure the appropriateness of the Business Improvement Plan by utilizing neutral, external experts in addition to the internal audit division, and confirm the status of improvement and effectiveness of such plan.

Subsequent to the implementation and until the completion of the Business Improvement Plan described in 2 above, generate a report on such plan’s status, including the progress, implemented measures, and improvement, every three months, starting with the period ending at the end of August 2015, and submit it to the FSA by the 15th day of the following month.

Some of the former managers of the Tokyo Branch have been structuring and executing inappropriate loans themselves, such as allocation of loan amounts to multiple companies within the same corporate group in order to provide loans in the amount not exceeding the branch manager’s discretionary approval limit.

Some of the former managers of the Tokyo Branch substantially possessed real estate after they borrowed money from the branch in the name of its corporate customer, bought the real estate in its name and made the representatives of the corporation their own spouses.

Prevention measures against conducting transactions with anti-social forces taken by former managers of the Tokyo Branch were inappropriate, which is evidenced, for example, by an inadequate antisocial force database and ineffective pre- and post-screening in terms of relationships with antisocial forces.

The following fundamental governance and internal control issues were identified as forming the background to the problems described above.

• (1)Some of the former managers of the Tokyo Branch lacked awareness as to legal/regulatory compliance, managed the branch excessively focusing on earnings and made arbitrary decisions, without establishing an effective framework for loan screening and legal/regulatory compliance.

• (2)The middle office had not performed its check and balance function, which is evidenced, for example, by the fact that the compliance officer is not fully acquainted with the relevant laws and regulations of Japan, and the managers can easily loan money at their own discretion following the abolishment of the Credit Committee in July 2009 due to the policy of the headquarters.

• (3)The control department in the headquarters failed to manage the Tokyo Branch effectively, implementing branch management and performance reviews excessively focusing on earnings, unaware of the inappropriate state of management in the Tokyo Branch, and failing to select and send an appropriate person to act as the branch manager of the Tokyo Branch.

Internal audits conducted by headquarters have not been effective, failing to point out and check, based on an accurate understanding, the aforementioned series of issues identified at this time.