Investigations into Shinhan Financial Group by the prosecution and the financial regulators over a series of alleged wrongdoings may damage the lender’s credit rating this year, market insiders said Wednesday.

They said Shinhan Financial would have to be wary of another downgrade in its credit rating this year, following a case from its embezzlement scandal in 2010.

Their negative outlook on Shinhan Financial ― though it posted the highest earnings among Korea’s financial firms last year ― is based on several allegations being investigated by financial regulators and prosecutors.

The Financial Supervisory Service is expected to take punitive measures against Shinhan for several employees’ irregular business practices, as the regulator completed its periodical probe into the group in late 2012.

An executive in the banking industry, however, predicted that the coming sanction from the periodical inspection would not be the most important factor for the financial firm.

“Officials in the financial market share the view that the 2010 embezzlement scandal at Shinhan will come under the spotlight again after the term of President Lee Myung-bak ends (on Feb. 24),” he said.

Civic groups have continued to raise allegations that former Shinhan Financial chairman Ra Eung-chan used banking customers’ money for political funding for President Lee’s aides.

The prosecution recently launched an investigation into allegations that Ra handed over a slush fund totaling 300 million won ($278,000) to then-lawmaker Lee Sang-deuk, brother of President Lee, in 2008.

The FSS is also conducting a probe to verify the allegation that the former Shinhan chief had opened illicit bank accounts “under borrowed names.”

In a statement, the civic group Solidarity for Economic Reform has claimed that the prosecution should indict Ra and Lee Sang-deuk. The prosecution indicted only Shin Sang-hoon, then No. 2 figure at Shinhan, and Lee Baek-soon, No. 3, from its investigation in 2010 and 2011.

Meanwhile, the group’s flagship Shinhan Bank has been under close monitoring by regulatory officials. It recently decided to pay dividends worth 450 billion won ($415 million) to shareholders.

“As foreign investors hold the majority stake in the group, an issue of capital outflow could be highlighted in terms of financial soundness,” an FSS official said.

In late 2010, U.K.-based Fitch Ratings downgraded the credit ratings of Shinhan Financial’s key subsidiaries including Shinhan Bank, Shinhan Card and Jeju Bank to “negative” in the wake of the embezzlement scandal.

The FSS official said the subsidiaries saw their ratings by Fitch recover to “stable” in September 2011. “Now there is a high possibility that global ratings agencies will pay closer attention to the renewed allegations.”

Some analysts argued that incumbent Shinhan chairman Han Dong-woo, who took up the top post in March 2011, appears not to be successful in revamping the group’s governance structure.

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