"Comprehensive Diagnosis and Improvement of Governance Vulnerabilities"
The Financial Supervisory Service (FSS) will conduct a regular inspection of NongHyup Financial Group and NongHyup Bank next month. In light of recent financial incidents at NongHyup Bank and the identified weaknesses in internal controls, the FSS plans to comprehensively diagnose governance vulnerabilities and derive improvement measures.
On the 24th, the FSS issued a press release explaining the background for initiating the regular inspection of NongHyup Financial Group and NongHyup Bank. The inspection is scheduled to begin in mid-next month, with preliminary examinations already underway since the 22nd.
The FSS conducts regular inspections of major large banks every two years, and this year marks the inspection cycle for NongHyup Financial Group and the bank. The recent financial incidents at NongHyup Bank revealed internal control weaknesses during the inspection, which is another reason for this review.
According to the FSS inspection results regarding the incident, it was confirmed that some NongHyup Bank employees were directly involved in illegal activities. An employee at NongHyup Bank’s Branch A received bribes from a real estate broker and colluded with them to forge and use private documents (such as creating false contracts) and inflate collateral values, facilitating large-scale improper loans. There is also a likelihood that similar incidents occurred at other branches of NongHyup Bank or other financial institutions, as loans involving the same real estate broker were handled by other financial companies.
In the case of an employee at Branch B, the FSS highlighted that the employee embezzled 200 million KRW from a fund by unauthorized termination without the consent of a naturalized foreigner unfamiliar with domestic financial operations. This employee had previously triggered other financial incidents and was detected during internal audits, but due to inadequate management, additional incidents occurred.
Lee Bok-hyun, Governor of the Financial Supervisory Service, is attending a meeting for the coexistence and development of companies and shareholder activism held at the Korea Financial Investment Association in Yeouido, Seoul on the 18th. Photo by Jo Yong-jun jun21@
The FSS expressed concern that vulnerabilities in the internal control system for accident prevention could lead to further financial losses for the bank and consumer damages, ultimately undermining the bank’s competitiveness. For example, employees from the NongHyup Central Association serving as heads of city and county branches of the bank may oversee internal controls at their respective branches, potentially weakening the internal control system.
Therefore, the FSS’s position is that it is necessary to comprehensively diagnose and improve the overall management and governance vulnerabilities of NongHyup Financial Group and NongHyup Bank through this regular inspection.
Meanwhile, the inspection will also review matters related to major shareholders (NongHyup Central Association) as stipulated in the Financial Holding Companies Act and the Banking Act, as well as governance-related matters prescribed in the Governance Act.
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