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Banks' rigid organizational culture blamed for repeated financial misconduct
Prosecutors confiscate evidence from Woori Bank headquarters in Seoul, Aug. 27, in connection to allegations of huge inappropriate loans extended to relatives of Son Tae-seung, former chairman of Woori Financial Group. Yonhap
By Jun Ji-hye
Financial authorities are working on improving the organizational culture within banks amid repeated reports of financial crimes such as embezzlement and breach of trust, officials said Monday.
The move comes as the authorities believe that the root cause of such incidents lies not in the systems but in the fundamental organizational culture.
The Financial Supervisory Service (FSS), the country’s financial watchdog, is particularly focusing on the rigid organizational culture within the banking sector, following a suspicion that Woori Bank had offered inappropriate loans worth 35 billion won ($26 million) to corporations and individual business owners related to the relatives of Son Tae-seung, former chairman of Woori Financial Group.
In the Woori case, it was found that the issue was not with the loan management systems but rather with the people in charge, as the inappropriate loans were extended upon the instruction of senior management.
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Whenever a financial wrongdoing occurs, banks emphasize the importance of strengthening internal control and vow to improve their systems. However, such incidents continue.
According to reports from five major banks — KB Kookmin, Shinhan, Hana, Woori and NH NongHyup — a total of 32 financial crimes including embezzlement and breach of trust occurred in the first half of this year.
This number is already nearing the 36 incidents reported by the five banks last year.
For its part, NongHyup Bank began an internal audit on Aug. 20 in response to suspicion of embezzlement of some 11.7 billion won at its branch in Seoul. An unidentified employee is suspected of orchestrating the large loans using the names of acquaintances over about four years from June 2020.
The audit process, however, has since been halted after the employee died by suicide on Aug. 21, according to industry officials.
Calls for fundamentally changing the organizational culture and practices within the banking industry have already been raised for some time. Despite multiple improvements to internal control systems in response to numerous financial crimes, these reforms have proven insufficient to prevent further financial misconduct.
Industry officials underscored that the internal control systems and consumer protection frameworks in the domestic financial sector are already comparable to those in advanced countries.
Against this backdrop, the FSS is studying the organizational culture supervision practices of banks in other countries in a bid to develop relevant improvement plans.
The FSS plans to establish organizational culture guidelines and encourage domestic banks to adhere to them voluntarily.
It is also cautiously expected that the watchdog may add a category for compliance with those guidelines to the management performance evaluation conducted during its regular inspections.
“Discussions on developing organizational culture improvement measures are in the very early stages,” an FSS official said.
“Incorporating these measures into the management performance evaluation will also require finalizing the method for assessing organizational culture first, so it will take some time before the actual implementation.”