The financial watchdog will reprimand the main creditor bank of cash-strained STX Group and Dongbu Group for negligence in monitoring the financial conditions of the conglomerates, officials said Monday, pressuring the bank to take stronger measures to normalize the ailing firms.

STX Group, the 13th-biggest conglomerate with 10 affiliates under its wing, has been struggling with a liquidity shortage and mounting debts due to the downturn in the shipbuilding and shipping sectors.

The Financial Supervisory Service (FSS) discovered that the main creditor, Korea Development Bank, had extended some 1 trillion won ($979.4 million) worth of loans to the ailing affiliates of the conglomerate, failing in its debt-screening process and in assessing the conglomerate's ability to repay.

"We have found many problems about KDB's negligence through multiple inspections on STX-related issues," an official from the FSS said. "The KDB has failed to perform its duties as the main creditor."

The KDB allegedly raised credit ratings of STX affiliates without reference and gave them additional loans. It also failed to detect STX Offshore & Shipbuilding Co.'s diversion of the advanced money to investment into its affiliates, according to the FSS.

The watchdog is looking into suspicions that the KDB had given favors to STX Group in return for the company's employment of a former KDB official.

The KDB is also under pressure to normalize Dongbu Group, the country's 18th-largest conglomerate whose attempts to sell off assets for self-rescue failed, leaving it short of cash.

The KDB has been holding off on a 20 billion won rescue fund to the Dongbu Group, which the FSS sees as disrupting the local financial market and incurring losses on individual investors.

The financial watchdog last year gave itself strengthened authority to punish creditor banks that neglect their duties. (Yonhap)