Korean authorities urge 5 major financial groups to be responsible in management

Financial Services Commission Chairman Kim Joo-hyun, right, and Financial Supervisory Service Governor Lee Bok-hyun on Mar. 31. [Photo by Yonhap]

Financial Services Commission Chairman Kim Joo-hyun and Financial Supervisory Service Governor Lee Bok-hyun met with the heads of the five major financial groups and the Korea Federation of Banks Friday to request efforts to stabilize the financial market and regain the trust of the financial industry.

The meeting between the financial regulators and the banking leaders comes at a time of heightened uncertainty in the global financial markets, as concerns mount over the impact of rising interest rates and banking crisis in the U.S. and Europe.

“We ask for joint efforts to prepare for domestic and international uncertainties,” Kim said. “Although the impact of the default of major overseas banks on our financial market is limited, we must remain alert. We hope that the financial sector will take interest in support programs such as the pandemic repayment deferral and debt adjustment for vulnerable borrowers, as well as special guarantees for minimum credit borrowers and the financial sector will cooperate to minimize the increase in interest rates that are passed on to borrowers by absorbing the cost increase factors as much as possible.”

Kim also emphasized the importance of internal control and risk management capabilities at banks, requesting efforts to make the financial industry a trusted financial sector through responsible management.

“We intend to introduce a system where executives responsible for risk management in each business area will be clearly defined and management will have a sense of responsibility for risk management,” Kim said, adding that the authorities will push for improvement in the governance structure to enable the appointment of competent CEOs and restrict their power.

“We will encourage banks to introduce a succession program for CEO candidates and determine whether to extend the CEO’s term based on supervision and performance evaluation,” Kim said.

The heads of the five major financial groups on Mar. 31. [Photo by Yonhap]

Regarding the management compensation system, Kim clearly stated his position that a culture of taking full responsibility can be created through the introduction of shareholder voting rights, or say-on-pay, and legal grounds that can claw back performance-based pay in the event of losses resulting from a focus on short-term performance.

“If the responsible management in the financial industry is guaranteed, we will continue efforts to promote regulatory innovation and regulatory system improvement to enhance competitiveness and innovation of the financial industry,” Kim said.

Lee expressed his appreciation for the various activities of financial groups to support vulnerable groups recently and asked them to continue. He also urged financial holding companies to establish their own crisis response systems, including building sufficient loss absorption capacity as volatility in the domestic and international financial markets may expand, and real estate project financing risks remain severe.

In response, the major financial holding companies pledged to fulfill their social responsibilities and meet the expectations of the financial market and their customers.

Shinhan Financial Group Chairman Jin Ok-dong said that “the role of finance is more important than ever and we will fulfill our social responsibilities.” Woori Financial Group Chairman Yim Jong-ryong said that “we will continue efforts for win-win financing by reorganizing our organizational system and preparing the best possible package.”

Shinhan Financial Group Chairman Jin Ok-dong said that “we will strive to fulfill our social responsibility by focusing on financial stability and mutual prosperity in finance,” while NongHyup Financial Group Chairman Lee Suk-joon and KB Financial Group Vice Chairman Yang Jong-hee expressed their agreement and willingness to do their best in fulfilling social responsibilities.

Korea Federation of Banks Chairman Kim Kwang-soo said that “the banking business has three priorities: soundness, profitability, and social responsibility. We will strive to balance these three factors.”