The Financial Supervisory Service and Hana Bank chief Kim Jong-jun appeared to be in a rare tug-of-war over whether the latter should leave his post over a scandal involving his past misdemeanors.

On Tuesday, industry sources said that the FSS had threatened to air Kim’s dirty laundry ― his involvement in an ill-advised loan granted by Hana Capital to an ailing savings bank ― to facilitate an ouster.

The FSS has already issued a heavy penalty on Kim banning him from working at financial institutions for up to five years.

The penalty, however, is not legally binding, and Kim sought to take advantage of it by saying on Friday that he plans to serve out his term scheduled to end in March 2015.

Kim is suspected of facilitating up to 14.5 billion won ($13.7 million) in loans to a savings bank when he headed Hana Capital in 2011. Many irregularities were found in the lending process, and Hana ultimately failed to re-collect almost half the loan.

Kim’s comments were unusual, as bank heads generally take the FSS’ warning as a sign to step down. As Kim refused, the FSS is planning to soon disclose the full scope of its punitive measures against him on its website as soon as possible.

“We do not understand why Kim is trying to hold on to his title,” said an FSS official, declining to be identified. “He should take responsibility for what he has done according to the law and principles.”

He also noted that Kim’s behavior is serious enough warrant punishment, adding, “A corrupt leader doesn’t deserve to manage the bank.”

Kim declined to comment on the FSS’ move.

He seemed to have the moral backing of fellow bankers such as Kim Seung-yu, former chairman of Hana Financial Group, who lodged complaints against the watchdog’s actions, saying he supports the decision not to resign.

Kim of Hana Financial, the holding company of Hana Bank, had earlier been reprimanded for granting illegal loans and abusing his power to buy some 4,000 pieces of artwork through the banking group. He received a lighter punishment than the Hana Bank president.

He claimed the watchdog is determined to punish and oust the leaders of Hana Bank, as shown by the FSS investigating the same case three times.

Hana Bank is embroiled in another scandal involving loan fraud worth more than 1.8 trillion won.

Regulators are looking into whether anyone from the implicated banks was involved in the fraud.

Officials at Hana say they are concerned that the friction with the watchdog may affect the pending merger of Hana’s credit card unit with the card affiliate of Korea Exchange Bank.

Lee Jang-ho, former chairman of BS Financial Group Inc., surrendered to the watchdog and resigned last year after the FSS discovered his irregularities and demanded that he step down.

By Bae Hyun-jung and news reports
(tellme@heraldcorp.com)