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Banks strengthen internal controls amid repeated financial crimes
Bankers and customers are seen at loan counters at a bank in Seoul, June 26, 2023. Newsis
By Jun Ji-hye
Financial watchdog to inspect KB Financial Group, Kookmin Bank starting Thursday
More banks are moving to advance their systems to strengthen internal controls amid repeated reports of financial crimes involving embezzlement and breach of trust. The move came as such incidents seriously harm brand image, which can be devastating for banks that operate based on customers' trust.
According to data the Financial Supervisory Service (FSS) provided to Rep. Kang Min-kuk of the ruling People Power Party, embezzlement incidents at banks from 2018 to 2023 amounted to a total of 152.5 billion won ($114 million).
In 2022 alone, the figure came to 73.97 billion won, as a Woori Bank employee was found to have embezzled some 70 billion won at the time.
Embezzlement cases have continued this year, with the total amount tallied at 770 million won as of June 14.
In addition to embezzlement, other financial incidents also occur during the loan process. At NH NongHyup Bank, there have already been three breach of trust incidents in the first half of this year, amounting to a total of 17.4 billion won.
Whenever a financial incident occurs, banks emphasize the importance of strengthening internal control.
In particular, after Woori Bank was mired in controversy recently over inappropriate loans worth 61.6 billion won given to relatives of the former chairman of Woori Financial Group, it is moving faster to strengthen internal control and freshen up its brand image.
The firm has expanded the insider reporting channels for improper loans through the internet and mobile platforms. It also increased the frequency of unannounced inspections at branches across the country.
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"We will make every effort to restore customer trust by strengthening employee ethics training and other measures," a Woori Bank official said.
In a similar move, NH NongHyup Bank has strengthened accountability for financial incidents among office heads and division managers, and introduced the so-called ethics certification system to enhance ethical culture. Additionally, it established a special audit team.
KB Kookmin Bank has collaborated with major accounting firm KPMG and law firm Kim & Chang to upgrade its monitoring system, while Shinhan Bank plans to deploy at least 0.8 percent of the total workforce to its compliance monitoring department by the end of next year.
Hana Bank, which began overhauling its internal regulation system in February 2023, completed the process last month.
Kim Byoung-hwan, the chief of the Financial Services Commission, speaks during a meeting with heads of banks at the Korea Federation of Banks building in Seoul, Tuesday. Yonhap
Kim Byoung-hwan, the chief of the Financial Services Commission (FSC), the country's top financial regulator, also raised the necessity for banks to strengthen internal controls to restore trust from customers.
"Banks must always be at the pinnacle of trust, yet recent issues have challenged their credibility," Kim said during a meeting with the heads of banks, Tuesday.
"With a determination to undergo a thorough transformation, it is essential to completely reassess and overhaul the internal control systems."
The FSS, for its part, will conduct regular inspections of KB Financial Group and KB Kookmin Bank for the first time in three years. Starting on Thursday, the financial watchdog will deploy approximately 40 investigators for about six weeks to carry out the inspections.
The FSS typically conducts regular inspections of financial institutions every three years. KB last underwent a regular inspection in June 2021.
"Since regular inspections are comprehensive in nature, they will cover all aspects of management and operations," an FSS official said.