Financial Supervisory Service Strengthens Accountability, Orders Bank CEOs to Conduct Direct Inspections Following Series of Major Accidents

Meeting with 17 Bank CEOs on 'Internal Control and Household Debt'
Comprehensive Inspection Led by Bank CEOs and Submission of CEO Confirmation Signatures Required
Strict Measures for Employees if Financial Accidents Occur

Check Compliance with DSR Regulations and Loan Screening
Comprehensive Inspection of Household Loan Practices by October

On the 17th, Lee Joon-su, Deputy Director of the Banking and Small Business Division at the Financial Supervisory Service, held a meeting with the heads of 17 banks at the Bankers Association in Jung-gu, Seoul, to discuss strengthening internal controls and household loan management.

Gyeongnam Bank's embezzlement incident involving 56.2 billion KRW, Daegu Bank's illegal opening of over 1,000 customer accounts, and Kookmin Bank's unfair gain of 12.7 billion KRW using undisclosed information of a listed company. As major incidents have occurred one after another in the banking sector this month, the Financial Supervisory Service (FSS) has strengthened the responsibility of bank presidents by urging them to directly inspect internal control systems. On the 17th, Lee Junsu, Deputy Governor of the FSS for Banking and Small and Medium Enterprises, held a meeting titled 'Strengthening Internal Control and Household Loan Management' with presidents of 17 banks at the Korea Federation of Banks in Jung-gu, Seoul, where he announced this.

Directive to Improve Short-term Performance-oriented Indicators

Deputy Governor Lee said, "Please conduct a comprehensive inspection under the leadership of the bank presidents to ensure that the internal control system for accident prevention operates effectively across the entire organization," adding, "The role of management is crucial for the internal control system to function thoroughly at every corner of the business site." Major domestic bank presidents must submit to the FSS by the end of this month the status of implementation of internal control innovation measures, similar recent incidents related to accidents, and the current status of internal control for accident prevention.

The FSS announced the 'Domestic Banks Internal Control Innovation Plan' last November. The key points include securing compliance monitoring personnel at a minimum of 0.8% of all employees or at least 15 personnel for large banks, and introducing a system mandating forced leave for employees in high-risk positions. Since the Daegu Bank incident was related to inflating performance, Deputy Governor Lee urged, "Please improve performance indicators focused on short-term results and take uncompromising measures against illegal activities."

He continued, "Bank executives and employees responsible for financial accidents will be strictly disciplined," and "We will also strengthen supervisory and inspection functions for accident prevention." The FSS plans to expand cash inspections at bank headquarters and branches, conduct cross-verification of banks' self-inspection results, enhance reporting of financial accidents to the FSS, and increase the weight of internal control evaluations.

Deputy Governor Lee stated, "We plan to support the Financial Services Commission to expedite the enactment of the 'Governance Act Amendment,' which imposes internal control management obligations on senior bank management and introduces a responsibility structure."

Review Appropriateness of Income and Credit Screening Procedures When Granting Loans

Lee Junsu, Deputy Governor of the Financial Supervisory Service

Regarding the rapidly increasing household loans, Deputy Governor Lee urged bank presidents to "strengthen management to prevent rapid expansion." Household loans in the banking sector began to increase from April, with the growth rate accelerating over time. In July, loans increased by 5.4 trillion KRW compared to the previous month.

Accordingly, the FSS announced it will inspect to ensure that cases where the Debt Service Ratio (DSR) regulation is not properly applied do not occur. Financial authorities pointed out that 50-year mortgage loans, which have lower monthly principal and interest payments than 30-year mortgage loans, are being used by financial consumers as a means to evade DSR regulations.

Deputy Governor Lee said, "We will examine whether the borrower's income screening and credit screening procedures necessary for collateral value evaluation are being properly conducted." He also requested, "Please manage so that the overall household loan growth and the loan growth rate of specific borrower groups remain within the scope consistent with the bank's credit policy, risk management, and capital management plans." The FSS plans to conduct a comprehensive inspection of household loan handling practices in the banking sector by October.

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