FSS to Initiate Regular Inspection of IBK Industrial Bank This Year?

Last Regular Inspection of IBK Industrial Bank of Korea Was in 2020
Improper Loans Worth 24 Billion Won Detected Early This Year
Thorough Review of Capital Adequacy and Internal Controls Expected

The Financial Supervisory Service (FSS) is expected to conduct a regular inspection of IBK Industrial Bank of Korea this year. This is because it is time for the special bank's regular inspection, which is conducted every five years, and a 24 billion won employee embezzlement case occurred earlier this year. As this is the first special bank inspection conducted in the last year of FSS Governor Lee Bok-hyun's term, it is anticipated to be carried out rigorously.

According to financial authorities on the 6th, the FSS Banking Inspection Department will soon finalize the inspection plan and announce it in early March. Among the special banks this year (Korea Development Bank, Export-Import Bank of Korea, and Industrial Bank of Korea), IBK Industrial Bank of Korea is the most likely candidate for the regular inspection.

While regular banks undergo inspections every 2 to 3 years, special banks are inspected approximately every five years. The Korea Development Bank and Export-Import Bank of Korea underwent regular inspections in 2022 and 2023, respectively. IBK Industrial Bank of Korea last had a regular inspection in November 2020. Notably, the financial accident involving approximately 24 billion won in improper loans at IBK earlier this year is also considered a factor prompting the regular inspection.

The special bank regular inspection, like that of regular banks, reviews capital adequacy, soundness, and internal control issues. The FSS must notify the financial company of the results within 180 days after the inspection ends, and if there are no cases for deliberation by the Sanctions Review Committee, notification must be made within 160 days. If the FSS requests additional documents, the period is excluded from the calculation, so it generally takes more than three months from the inspection to notifying the financial company.

Once this year's inspection plan is finalized, a rigorous inspection of IBK Industrial Bank of Korea is expected. Previously, the FSS conducted regular inspections of Woori Financial Group (Woori Bank), KB Financial Group (Kookmin Bank), and NH Nonghyup Financial Group (Nonghyup Bank) following improper loans related to the former chairman of Woori Financial Group, and held a mid-term briefing on the inspections on the 4th.

At that event, FSS Governor Lee Bok-hyun emphasized, "We have no intention of rewarding poor internal controls or unhealthy organizational culture," and added, "I believe that the financial authorities should not be perceived as treating their relationship with financial companies as one of benevolence rather than a healthy tension."

A financial industry official said, "Internal control issues such as improper loans remain an important focus this year," and added, "Since the inspection cycle for IBK Industrial Bank of Korea has come around, the possibility of a regular inspection is high."

Meanwhile, an FSS official stated, "The plan for the special bank regular inspection has not yet been decided."