Financial supervisory officials said Tuesday that they are considering halting the operations of some branches of KB Kookmin Bank, which has been under full-fledged regulatory investigation over its irregular business practices.

Several of the commercial bank’s branches at home and abroad were found to have engaged in misconduct including embezzlement, money laundering, unauthorized lending and loan interest-overcharging, according to the Financial Supervisory Service.

Further, the FSS ― in collaboration with the prosecution and the National Tax Service ― is widening the scope of its inquiry into the allegations that some dubious loans, issued by the lender’s Tokyo branch, may have been used for political slush funds of the former administration.

“Unlike our periodical probes of each financial firm, the current scrutiny into KB is an extraordinary case,” said an FSS official. “The chief regulator (FSS Governor Choi Soo-hyun) has already pledged to reprimand financial industry CEOs engaged in ethical breaches.”

The official said he has not ruled out the possibility that some KB branches (or the bank’s headquarters) will be subject to business suspension for a certain period. As well, sanctions may be handed down against a group of executives at the bank and its parent company, KB Financial Group.

The FSS also plans to prevent the move by the nation’s second-largest financial group to offer performance-based extra incentives to executives at the end of this year.

According to the FSS, an employee of the KB headquarters recently embezzled company funds totaling 9 billion won ($8.2 million).

Regulatory inspectors are conducting an on-the-spot investigation at the KB Kookmin Bank headquarters in Yeouido, Seoul, in a bid to reveal whether the lender has been negligent in internal controlling.

The Tokyo branch manager was caught by the authorities in September over improper issuance of loans worth 170 billion won during the former Lee Myung-bak administration.

The FSS is set to hand over the case to the prosecution, while some market insiders allege that the loans could have been glossed over by former KB Financial Group chairman Euh Yoon-dae, a close confidant of former President Lee.

The bank’s Beijing branch was found to have replaced its manager and deputy manager without following personnel guidelines set by Korean regulators.

The FSS also plans to launch an inquiry into the bank’s acquisition of Bank CenterCredit, a lender in Kazakhstan.

The action comes after KB Kookmin Bank purchased a 41.9 percent stake in the Kazakhstani bank for 940 billion won back in 2008, which has inflicted losses worth 400 billion on the Korean bank.

KB has already suffered sanctions for losses inflicted from the investment in BCC. However, in the wake of additional signs of risk, the FSS is poised to dispatch inspectors to take a deeper look into the case with Kazakhstani officials.

The bank also has been suspected of having overcharged domestic borrowers loan interest totaling 2.9 billion won.

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