NH Financial launches high-intensity inspection...targets bank misconduct, governance

The Financial Supervisory Service (FSS) has initiated a high-intensity inspection of NH Financial Group and its affiliates, including NH NongHyup Financial Group, NH NongHyup Bank, and NH Investment & Securities.

The inspection, taking place ahead of the March shareholders' meeting, aims to scrutinize the group's governance structure following recent embezzlement incidents within the bank. According to financial sector sources, the FSS began a special inspection of NH NongHyup Financial Group and NH NongHyup Bank on the 7th, followed by a regular inspection of NH Investment & Securities starting the next day.

This move comes after it was revealed that NH NongHyup Bank had incurred a financial accident amounting to KRW 10.947 billion due to occupational embezzlement between 2019 and November last year. The FSS plans to extend the inspection to NH NongHyup Financial Group to investigate issues related to internal controls and governance.

Particular attention is expected to be given to the role of the National Agricultural Cooperative Federation (NACF) as the sole shareholder, holding 100% of the shares in NH NongHyup Financial Group.

The inspection is anticipated to cover whether the brand usage fees and contributions paid by the financial holding company and the bank to the NACF are excessively determined.

A senior official from the FSS stated, "We will examine whether the recurring management issues stem from internal controls or organizational culture within the NH Financial Group rather than from individual companies."

Additionally, the regular inspection of NH Investment & Securities has been brought forward, with a focus on whether the CEO appointment process is conducted appropriately.

The financial sector anticipates that the NACF may exert influence over the selection of the next CEO.

This inspection will also likely assess various issues, including real estate project financing (PF), risks related to overseas real estate, and valuation processes in initial public offerings (IPOs). The investigation will also scrutinize whether the NACF’s shareholder authority is excessive, potentially impacting the management autonomy within the financial group.

The FSS is applying pressure on financial companies ahead of the shareholders' meeting through this governance inspection and has announced that it will receive a "Roadmap for Best Practices in Bank Governance" from financial holding companies.