Lee Bok-hyun, Financial Supervisory Service Chief, Holds Regular Meeting with Bank Holding Company Board Chairs
"Widespread Warm-Heartedness in Banking Sector" Criticism
Urges Establishment of Management Strategies Amid Economic and Financial Uncertainty
Lee Bok-hyun, Governor of the Financial Supervisory Service, reiterated the need to improve the management culture focused on short-term performance and establish an organizational culture centered on compliance awareness and just rewards and punishments at a meeting with the chairpersons of bank holding company boards. He also mentioned that the board of directors should strengthen its monitoring and checking functions over management and build a more robust internal control system through the implementation of accountability structures. In particular, regarding internal control, he referred to allegations of improper loans related to relatives of former Woori Bank Chairman Sohn Tae-seung and emphasized the need to devise improvement measures.
Lee Bok-hyun, Governor of the Financial Supervisory Service, is surrounded by reporters and answering questions as he enters the Bankers' Hall in Myeong-dong, Seoul, on the 28th to attend the meeting between the FSS Governor and the chairpersons of bank holding company boards.
On the 28th, Governor Lee held a regular meeting with the chairpersons of the boards of eight bank holding companies at the Bankers' Hall in Jung-gu, Seoul, where he made these remarks. Attendees included Kwon Sun-joo, Chairperson of KB Financial Group; Yoon Jae-won, Chairperson of Shinhan Financial Group; Lee Jung-won, Chairperson of Hana Financial Group; Jung Chan-hyung, Chairperson of Woori Financial Group; Lee Jong-baek, Chairperson of NH Nonghyup Financial Group; Choi Kyung-soo, Chairperson of BNK Financial Group; Choi Yong-ho, Chairperson of DGB Financial Group; and Yoo Kwan-woo, Chairperson of JB Financial Group.
In his opening remarks, Governor Lee identified the vulnerabilities in the management of bank holding companies as ▲a management culture focused on short-term performance ▲the need to strengthen the board’s monitoring and checking functions ▲and the necessity to establish an organizational culture centered on compliance awareness and just rewards and punishments.
First, he pointed out that a paternalistic organizational culture still widely exists within financial companies, which leads to a decline in members’ ethical awareness and is the cause of repeated financial accidents. Governor Lee said, "Please pay great attention at the board level to establishing an organizational culture that emphasizes compliance and just rewards and punishments, such as strengthening disciplinary actions against repeated violations and applying strict standards for culpable employees."
Regarding the management culture focused on short-term performance, he criticized that bank holding companies have not made long-term and consistent innovative efforts in areas such as customer asset management, asset operation, and financial inclusion. This judgment was based on the fact that similar issues have been repeated despite years of ongoing incomplete sales problems, and loans have been managed mainly through real estate lending rather than productive fund intermediation functions.
Governor Lee pointed out, "There has been a tendency to focus on achieving short-term performance through easy methods such as selling high-risk financial investment products, managing loans mainly based on real estate and collateral/guarantee loans, and reducing branches and personnel to cut costs," adding, "Customer protection and internal control functions have weakened, and the fulfillment of social roles commensurate with the scale of profits is insufficient."
He then emphasized the need to strengthen the board’s fundamental functions. Since financial authorities have introduced best governance practices to holding companies and banks and have worked to advance governance, the board should strengthen its monitoring and checking of management. He particularly noted, "If the board’s supervisory function does not operate adequately in important management decisions or business execution processes such as overseas expansion and subsidiary acquisitions, the company’s risk management and internal control functions may become formalized, and the concentration of management authority and short-term performance-oriented management practices may become entrenched."
Governor Lee also mentioned issues that bank holding companies will face next year, including ▲establishing management strategies to prepare for economic and financial uncertainties ▲strengthening internal controls through the implementation of accountability structures ▲and autonomous efforts for win-win finance and social contribution.
Regarding the establishment of management strategies to prepare for economic and financial uncertainties, he said, "With the expansion of macroeconomic uncertainties next year, the investment, liquidity, and credit risks of subsidiaries are likely to increase significantly," and urged, "Please carefully review the appropriateness of risk exposure management, funding and operation, and capital plans for each subsidiary during group management plan deliberations."
He also did not omit mentioning household loan management. He emphasized the need to expand banks’ loss absorption capacity so that the supply of funds to small and medium-sized enterprises and small business owners is not contracted even if latent risks materialize. Governor Lee said, "As autonomous management in the banking sector is strengthened, please also review the management plan for the secondary financial sector to prevent balloon effects," adding, "Please expand banks’ loss absorption capacity so that the supply of funds to small and medium-sized enterprises and small business owners is not contracted, and when acquiring subsidiaries or promoting value plans, carefully examine the impact on the financial soundness of bank holding companies so that balanced decision-making can be made at the board level."
He reiterated the importance of strengthening internal controls through the implementation of accountability structures and autonomous efforts for win-win finance and social contribution. Above all, regarding internal control, he emphasized the need to devise improvement measures concerning allegations of improper loans related to relatives of former Woori Bank Chairman Sohn Tae-seung. Governor Lee said, "To ensure the effective operation of internal controls, please actively perform monitoring and checking roles at the board level so that the holding company chairman can take responsibility and act as the overall person in charge," adding, "It is also necessary for the holding company to jointly consider measures to improve internal controls to settle improvements in the banking sector’s loan processes and prevent preferential loans to executives’ relatives."
Meanwhile, the board chairpersons attending the meeting expressed their agreement with Governor Lee’s views and responded that they would focus more on securing sustainable growth engines based on future-oriented mid- to long-term strategies and innovative efforts. They also stated that, as the highest point of governance, the board would faithfully fulfill its monitoring and checking roles to lead the sound and proper growth of bank holding companies.
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