The Financial Supervisory Service (FSS) is conducting a regular inspection of KB Securities. Since a regular inspection is conducted periodically, it is expected to look into overall management conditions, including financial soundness, consumer protection, and internal controls. In particular, following the project financing (PF) insolvency situation, it is projected to focus on checking internal control functions for blocking risk spread and protecting investors.
According to the financial investment industry on the 7th, the FSS recently requested space preparation for on-site inspections at KB Securities. Preliminary inspections, including requests for document submission necessary for the main inspection, were conducted in the first half of the year, and the on-site inspections are expected to begin soon.
The FSS has stated that it will focus on areas such as 'preventing consumer financial damage and financial accidents,' 'risk response and enhanced soundness,' and 'establishing market order' in this year's inspections.
The FSS is expected to take a closer look at KB Securities' loan loss provisions. KB Securities still faces some insolvency risks in certain investment sites from its real estate PF business. Notably, the commencement of the smart city project, being pursued in a consortium with LG CNS, has been delayed, and there are exposures in the Busan Bujeon-dong mixed-use project. In logistics center sites, there are places such as Siheung MTV and Ansan logistics center. However, most sites are conducted with senior loans, thus assessed to have a high recovery possibility.
Financial authorities have emphasized that financial and securities companies should accumulate PF provisions to prepare for shock absorption. However, KB Securities has been evaluated as passive in accumulating provisions until now. While it has actively increased provisions from 2023, the provisions are not significant compared to the scale of PF businesses when compared to other securities firms. According to Korea Credit Rating, as of June last year, the loan loss provision ratio of KB Securities was 22%, lower than the average of 36% for securities firms.
As financial authorities continue to emphasize soundness management and provision accumulation for PF loans to banks and securities firms, it is expected to be an important issue in this inspection as well. Reflecting this trend from financial authorities, KB Securities has significantly increased the size of its provisions since the first half of this year. The originally set provision amount for the first half of the year was 72 billion won, but it accumulated more than that, totaling 82 billion won.
It is anticipated that internal control issues will also be closely examined by the FSS. The financial authorities identified proactive supervision to prevent consumer damage as a key focus for this year's inspections.
Previously, KB Securities and nine other securities firms received institutional warnings and fines after it was confirmed that they had rolled over bonds in customer wrap accounts and specific money trusts in 2023. These securities firms proposed investor protection measures while compensating customer losses using their own assets, but financial authorities defined the incident at the time as an act that undermined the capital market trading order and the principle of investor personal responsibility.
The FSS selected Daishin Securities and KB Securities as targets for regular inspections in the securities industry this year. The inspection of Daishin Securities was completed last month, and the inspection of KB Securities will conclude the regular inspections of securities firms for this year.
KB Securities was selected for a regular inspection for the first time in six years since its comprehensive inspection in 2019. The FSS reformed its inspection system from a comprehensive and sector inspection system to a regular and ad-hoc inspection system in 2022.