Police on Tuesday raided the offices of a KT Corp. affiliate as part of their investigation into allegations of large-scale loan fraud by employees.

KT ENS Co., affiliated with KT Corp., the country's No. 2 mobile operator, is being probed over suspicion of illegally taking out some 280 billion won ($260 million) in loans from 16 local banks with forged documents.

A team of officers of the Seoul Metropolitan Police Agency seized computer hard drives and related documents during the raid of six offices in southern Seoul and the port city of Incheon.

The banks had extended the loans to a special purpose company set up by KT ENS's subcontractors with receivables as collateral, SMPA officers said, adding that the documents submitted to the banks were fake and the receivables were counterfeit as well.

The country's financial watchdog estimates the banks had initially extended loans of more than 400 billion won.

"We will be able to outline the exact amount of damages of the loan fraud after fully investigating the 16 banks," said an SMPA investigator.

A 51- year-old manager-level KT ENS employee, only identified by his surname Kim, is believed to have played a leading role in the fraud, according to the SMPA.

Investigators said they have taken Kim into custody for questioning and said they will also continue pursuing the chiefs of four subcontractors suspected of collusion in the fraud. (Yonhap)