Savings Banks, Over 20 Financial Supervisory Service Sanctions Annually Since 2018 (Comprehensive)

Savings Banks Face Over 20 Financial Supervisory Service Sanctions Annually Since 2018
23 Sanctions and 609 Million KRW Fines Last Year
"Calls for Strengthening Voluntary Internal Control Functions"

[Asia Economy Reporter Song Seung-seop] As financial authorities impose strong sanctions such as business suspension on ES Savings Bank (formerly Live Savings Bank), issues related to operational and managerial irregularities in the savings bank industry are being spotlighted again. After the 2011 savings bank crisis, which resulted in 82 sanctions and fines totaling 11.43845 billion KRW, the industry underwent major regulatory tightening and restructuring. However, practices such as so-called 'split loans' still persist, leading to continuous sanctions from financial authorities.

Savings Banks Face 23 Sanctions and Fines Totaling 609 Million KRW

According to financial authorities on the 28th, a total of 21 savings banks received 23 sanctions last year. There were 8 reprimands and warnings issued to institutions, and 24 disciplinary actions including warnings and cautionary warnings (including duplicates) against executives. After the number of sanctions doubled from 12 in 2017 to 24 in one year, 23 to 24 legal violations have occurred annually since then.

Fines (including penalties and administrative fines) amounted to 609 million KRW, with administrative fines at 380 million KRW and penalties at 229 million KRW. Although this is a significant decrease compared to the previous year’s 8.3246 billion KRW imposed for illegal credit extensions by major shareholders and exceeding loan limits, it is still considered a high level given that fines had not exceeded 200 million KRW since 2017.

There were also violations related to excessive loans to the same borrower, which was a major disciplinary reason for ES Savings Bank. The Mutual Savings Banks Act prohibits savings banks from extending credit exceeding 25% of their capital to the same borrower. Union Mutual Savings Bank was fined 228 million KRW last November for providing 11 billion KRW, exceeding the 2.56 billion KRW limit, to two corporations sharing credit risk. ES Savings Bank also faced issues for lending amounts exceeding 210.3% of capital to individuals and corporations considered effectively the same borrower.

Among the sanctioned institutions were three of the five major savings banks (SBI, Korea Investment, and Welcome). SBI Savings Bank was fined 264 million KRW for selling insurance products by general employees who were not licensed insurance agents. Korea Investment Savings Bank received institutional caution and a fine of 31.2 million KRW for providing financial benefits to major shareholders during the sale of mid-term loan receivables to related parties. Welcome Savings Bank also received warnings for two employees for failing to comply with high-value cash transaction reporting obligations.

Financial Authorities Call for Strengthened Voluntary Internal Controls Across the Industry

The savings bank industry has been striving to improve its image and capabilities through internal management structure reforms, sports marketing, and various social contribution activities since the insolvency crisis a decade ago. Recently, with the launch of open banking services, they have expanded into YouTube and social media, focusing on shedding negative perceptions. However, experts point out that there is still a long way to go to establish stable self-regulatory capabilities.

A financial authority official explained, "The regulations currently imposed on the savings bank industry are a continuation of measures strengthened after the 2011 insolvency crisis," adding, "For regulatory easing to support the growth of savings banks, there must be voluntary efforts within the industry to strengthen internal control functions." This implies that for the regulatory relaxation on mergers and acquisitions (M&A), which the savings bank industry has consistently requested, to be realized, actual legal violations must decrease.

Meanwhile, at the regular meeting held on the same day, the Financial Services Commission decided to suspend ES Savings Bank’s new securities (stock) collateral loan business for six months and impose penalties of 9.11 billion KRW and administrative fines of 74 million KRW. The reason cited was the discovery of multiple illegal activities during the handling of convertible bonds (CB) and bond warrants (BW) collateral loans. The Financial Services Commission also recommended the dismissal of the former CEO.

This content was produced with the assistance of AI translation services.