This year, the Financial Supervisory Service (FSS) confirmed that BNK Financial Group and Busan and Gyeongnam Banks will be the first regular inspection targets of the banking sector. The FSS had planned to conduct a regular inspection of BNK Financial at the beginning of last year; however, the schedule was pushed to the second half due to the massive losses related to the Hong Kong H-index equity-linked securities (ELS). However, subsequent regular inspections of NH Nonghyup Financial, KB Financial, Woori Financial Group, and their subordinate banks were suddenly carried out, which excluded BNK Financial from the inspection targets.
According to the financial sector on the 23rd, the FSS will announce its '2024 inspection operational plan' at the beginning of next month. Each year, the FSS determines the financial companies subject to inspection and the inspection schedule at the beginning of the year, reports this to the Financial Services Commission, and then makes it public. An FSS official noted, "We plan to conduct the regular inspection of BNK Financial first."
The FSS typically conducts regular inspections of specific financial companies every 3 to 5 years, but BNK Financial and Busan Bank have not undergone a regular inspection in the past decade. Gyeongnam Bank was inspected in 2015. Compared to major financial holding companies and commercial banks that receive regular inspections every 2 to 3 years, the inspection cycle is relatively long.
This inspection will focus on reviewing the internal control system and operational status. Previously, at Gyeongnam Bank, an employee in charge of real estate project financing (PF) embezzled 308.9 billion won. The amount involved is the largest ever recorded in a single embezzlement case. An employee, identified as Lee, a Director General at Gyeongnam Bank, is under suspicion of having diverted funds over 14 years, from 2008 until July 2022, while handling real estate PF loans, and was sentenced to 35 years in prison in the first trial. Financial authorities concluded there were issues with Gyeongnam Bank's internal controls and imposed a heavy penalty of stopping new PF loans for six months and a fine of 380 million won last November.
The review is also expected to scrutinize financial soundness and capital adequacy closely. The Securities and Futures Commission, under the Financial Services Commission, decided the previous day to impose a penalty surcharge of 3.5 billion won on Gyeongnam Bank for not appropriately reflecting the embezzlement in its financial statements and overstating its capital by 100 billion won, as well as a penalty surcharge of 20 million won on the CEO and designated auditors for one year.
Following BNK Financial, Shinhan Financial and Hana Financial are mentioned as the next regular inspection targets this year. Shinhan Financial and Shinhan Bank underwent regular inspections in March 2023, while Hana Financial and Hana Bank were inspected in November 2023. The results of the inspections conducted in the second half of last year on NH Nonghyup Financial, KB Financial, Woori Financial, and their subordinate banks are expected to be announced in the first week of February.
Earlier, Lee Bok-hyun, the head of the FSS, hinted at a 'harsh' approach towards Woori Financial and Woori Bank, which were implicated in unfair lending allegations involving relatives of the former chairman, but the announcement schedule was postponed twice following the emergency martial law situation. An FSS official noted, "The announcement of results is not aimed at targeting specific companies" and added, "It will be an opportunity to explain issues related to internal controls that are commonly found in financial holding companies and banks."