FSS Likely to Conduct Regular Inspection of Hana Bank This Year... Industry Watches Inspection Timing Closely

FSS to Hold Inspection Plan Briefing on March 11
Strict Internal Controls to Be Reviewed
Attention on Timing of Hana Bank's Regular Inspection
Governor Lee Bokhyun's Term Expires on June 7

The Financial Supervisory Service (FSS) is expected to begin regular inspections of Hana Financial Group (Hana Bank) this year, following Shinhan Financial Group (Shinhan Bank). Since FSS Governor Lee Bok-hyun has strongly pointed out internal control issues related to improper loans from the beginning of the year, inspections are likely to focus on these related issues. Some cautiously suggest that there may be changes to the existing schedule, such as regular inspections, around June when Governor Lee's term expires.

According to financial authorities on the 24th, the FSS Bank Inspection Division will hold a briefing on this year's inspection plans for the banking sector on March 11.

Shinhan Financial Group (Shinhan Bank) underwent its last regular inspection in the first half of 2023, and Hana Financial Group (Hana Bank) in the second half of 2023. Considering that the FSS's regular bank inspection cycle is about two years, it is now their turn for regular inspections this year.

This year's regular inspections are expected to strictly scrutinize internal controls, including improper loans. Last year, improper loans related to the former chairman of Woori Financial Group became a major issue, leading to intensive inspections of major financial groups and banks. Therefore, it is anticipated that improper loans and internal controls will be the main focus of this year's inspections.

Lee Bok-hyun, Governor of the Financial Supervisory Service, is attending and speaking at a meeting with commercial bank presidents held at the Bankers' Hall in Jung-gu, Seoul on the 19th. Meeting with the bank presidents for the first time this year, Governor Lee plans to discuss internal controls within the banking sector, household debt management, and loan interest rates. Photo by Jo Yong-jun

Governor Lee has continued to make strong remarks about improper loans in the banking sector since the beginning of this year. At a briefing on the interim inspection of improper loans at major financial groups on the 4th, he stated, "We have no intention of rewarding poor internal controls or unhealthy organizational culture."

Furthermore, at the full meeting of the National Assembly's Financial Services Committee on the 18th, regarding improper loans at IBK Industrial Bank of Korea, a state-run bank, he said, "We view this very seriously," and added, "We see this not as the misconduct of one or two individuals but as a structural problem within the organization." IBK Industrial Bank of Korea is currently undergoing an unscheduled inspection by the FSS after a 24 billion KRW improper loan incident was revealed earlier this year.

The key issue is the timing of the bank inspections. The financial industry expects that if regular inspections are conducted before Governor Lee's term expires on June 7, the inspection intensity will be high. A bank official said, "Even though the FSS governor's term is nearing its end, the inspection and supervisory work is being carried out tightly," adding, "If we become a target for the first half's regular inspections, the tension will naturally increase."

The regular inspections of the four major financial groups and banks are handled by the Bank Inspection Division 1. This division is currently burdened with conducting the management evaluation of Woori Financial Group. The 2023 regular inspection of Shinhan Financial Group (Shinhan Bank) was conducted in March, but this year it is scheduled for May. The regular inspection of Hana Financial Group is likely to take place in the second half of the year.