Lee Bok-hyun "Regional Banks Must Move Away from Culture of Favoritism and Focus on Internal Controls"

Lee Bok-hyun, Governor of the Financial Supervisory Service

On the 19th, Lee Bok-hyun, Governor of the Financial Supervisory Service (FSS), urged local banks to "move away from the culture of leniency and continuously pay attention to whether internal control standards are functioning properly."

On the same day, Governor Lee held a meeting with local holding company chairmen and bank presidents at the Busan Bank headquarters, stating, "I ask that you, centered on top management, examine whether there are any wrongful practices or unreasonable organizational cultures throughout business operations."

Local banks have experienced a series of incidents, including the embezzlement case involving BNK Gyeongnam Bank amounting to around 300 billion won. The distinctive 'yeongojoo-ui' (regionalism) and 'hyung-dongsaeng' (older brother-younger brother) culture have significantly influenced their growth as regionally embedded banks. However, there have also been criticisms that this culture has led to a lenient attitude toward various financial accidents. (▶Refer to Asia Economy, December 21, 2023 issue [Their Own League, Local Banks]③ 'Kings' in the Region... Local Banks with Poor Mutual Checks)

He added, "The FSS will actively cooperate and communicate to ensure that desirable business practices take root in local banks through future supervision and inspection processes."

Governor Lee also urged local banks to coexist with members of the regional economy facing difficulties and to prepare sustainable mid- to long-term competitiveness enhancement plans. He advised, "Local banks should continue to provide productive financial support and cooperative finance to members of the regional economy facing hardships. Considering various ways to support small business owners and contributing to embedding cooperative finance in the local community is also a good approach."

Regarding strengthening the competitiveness of local banks, he added, "Local banks, which have a good understanding of their base regions and loyal local customers, should leverage their comparative advantages, seek ways to enhance business infrastructure that can specialize in these strengths, and consider plans linked to revitalizing fund intermediation within the region."

On the same day, local banks proposed institutional incentives to encourage handling of policy-based financial products for low-income individuals, activation of transactions between public institutions and local banks, and communication to strengthen internal control capabilities.

Governor Lee stated that he would review policy fund programs in cooperation with related organizations such as the Financial Services Commission and the Bank of Korea. He also mentioned plans to form consultative bodies with local governments and local banks to prevent excessive competition in selecting provincial treasury banks and to create an environment where local banks can grow alongside their regions.