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Banks rush to clean up shop as scandal continues

Oct 03,2019
A recent scandal involving risky investment products has put Korea’s major banks on high alert, prompting a widespread drive to assess and reform internal oversight and risk management systems.

KB Kookmin Bank and KEB Hana Bank announced Thursday a series of measures to reduce risks associated with financial products, following the financial regulator’s investigation in connection with huge losses from derivative-linked securities (DLSs) and derivative-linked funds (DLFs).

KEB Hana Bank, which sold 46.3 billion won ($38.4 million) worth of DLFs tied to the swap rates of pounds sterling and the dollar, said that it will create a ceiling for high-risk investment products to limit the impact of potential losses.

“We will come up with the guideline to introduce a cap for investment in high-risk products so that asset managers can adjust clients’ portfolios when needed,” a spokesperson at KEB Hana Bank said.

Alongside the proposal, the bank’s CEO Ji Sung-kyoo apologized for the fiasco that is expected to cause more than 350 billion won of losses, according to the Financial Supervisory Service (FSS).

“To restore trust, [KEB Hana Bank] will fully cooperate in the settlement process and try our best to protect customers,” the CEO said in a statement.

The bank added that it will revamp its main performance indicator to change the system in a way that improves returns on investment and consumer satisfaction, echoing the measure announced by Woori Bank last month.

KB Kookmin Bank also took a similar approach on Thursday, though it is not involved in selling the controversial products.

The bank said that it plans to establish a multi-layered risk management system to detect potential losses on financial products and redesign the product structures.

Currently, the reviewing system consists of three stages, but a fourth will be added to filter out risky products.

In choosing investment class, KB Kookmin Bank will prioritize stability over high return, vowing to expand the proportion of low-risk options.

The FSS said on Tuesday that 20 percent of involved DLSs and DLFs may have been improperly sold.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]