Gyeongnam Bank embezzlement of 300 billion won prompts banking sector to self-inspect all real estate PF sites, "No signs of incidents"

Financial Supervisory Service "Post-Verification Underway for Banks' Self-Inspection Results"
Long-Term Employee Management Workplaces and Others
Some Workplaces with Internal Control Weaknesses Under Direct Re-Inspection

On the 12th, the Financial Supervisory Service (FSS) announced that the banking sector conducted a self-inspection of all real estate project financing (PF) projects. This was to verify whether similar incidents could occur following the embezzlement of nearly 300 billion KRW in PF loans at Gyeongnam Bank.

In August, during a meeting of bank presidents, the banking sector carried out a self-inspection of accident prevention measures and overall internal controls requested by the FSS. The banks conducted a one-month self-inspection focusing on ▲ signs of accidents in real estate PF fund management ▲ implementation status of internal control innovation measures ▲ appropriateness of overall internal controls for accident prevention, and submitted improvement plans for any deficiencies found to the FSS.

According to the FSS, the PF-related self-inspection was conducted by checking the consistency between PF loan balances and transaction details recorded in the banks’ electronic ledgers and those confirmed through PF loan borrowers, agent banks, and trust companies.

The inspection results showed that, except for Gyeongnam Bank which is currently under examination by the FSS, no unusual signs such as accident indicators in real estate PF fund transactions were found in the 14 domestic banks handling real estate PF loans.

The FSS is currently conducting follow-up verifications of the self-inspection results by each bank and is directly re-inspecting selected workplaces with concerns over weak internal controls, such as those with long-term employees.

An FSS official stated, "In addition to re-inspecting the banking sector’s inspection results, we plan to have banks conduct additional self-inspections to ensure that internal control procedures such as segregation of duties and post-management in the real estate PF loan sector are operating properly, and to promptly guide improvements where necessary."

Regarding internal control innovation measures, the FSS conducted interviews with 19 banks and guided them to address deficiencies. Major shortcomings included delays in implementing long-term employment approval procedures, omission of employees subject to mandatory leave, insufficient updates to segregation of duties management systems, and whistleblower reward plans.

For accident prevention, the banks inspected and prepared improvement plans covering various items such as the appropriateness of KPI operations and accident reporting systems, checking accounts with a high likelihood of embezzlement beyond similar financial accident cases, internal controls related to sales promotions, high-risk business theme inspections, compliance with internal regulations, appropriateness of internal audit systems and operations, and adequacy of internal control organizations. The FSS plans to monitor the implementation of these improvement plans going forward.

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

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