A local savings bank, now suspended for liquidity shortage, turned out to have provided more than 150 billion won in illegal loans to hostess bars and other adult entertainment clubs in southern Seoul, a police investigation found Friday.

According to sources, the Seoul Metropolitan Police Agency has booked eight executives and employees of Jeil Savings Bank without detention on illegal lending charges. Jeil Savings Bank is one of seven lenders whose operations were suspended by regulators on Sept. 18. Police also nabbed 93 bar operators who faked documents on collateral for loan applications, as well as a loan broker. 

Jeil, according to the investigators, extended loans totaling 154.6 billion won ($133.9 million) to 73 “room salons” and hostess bars in Seoul’s Gangnam district between March 2009 and this January, using faked documents. Room salons are karaoke bars that are allowed to hire hostesses.

Bar operators made the hostesses forge IOU notes and used the notes as the collateral in collusion with Jeil officials.

Bank staff also skipped credit checks on the bars when handling the loan applications.

Out of the 154.6 billion won in loans extended in this fashion, only 32.5 billion won have been repaid.

Jeil is also accused of illegal lending, totaling 22.4 billion won, to gang members who run some bars in the area.

A special investigation team is currently looking into alleged corruption and illegal lending by Jeil and other suspended savings banks after the Financial Services Commission halted their operations.

Earlier in the week, the investigators arrested Jeil CEO Lee Yong-jun on charges that he used names of more than 10,000 of its customers to lend beyond the limit to a construction project. The loan totaled 140 billion won.

By Lee Sun-young (milaya@heraldcorp.com)