By Lee Hyo-sik
Staff Reporter

Foreign banks operating here have been sanctioned a combined 23 times over the past two years by the financial regulator for various improper sales practices.

According to data submitted to Rep. Lee Sung-nam of Democratic Party by the Financial Supervisory Service (FSS) Monday, SC First Bank and Korea Exchange Bank (KEB) were reprimanded over the sale of their mortgages, while Citibank Korea, which stirred controversy in recent months with its sales of knock-in knock-out (KIKO) products to small firms, was disciplined for the sale of derivatives products.

There will likely be more such cases toward the year's end as a number of small and medium-sized enterprises have sustained huge losses from purchasing KIKO products and other currency option derivatives that allow businesses to sell dollars at a fixed won-dollar rate if the exchange rate stays within the range set in the contract.

After the won-dollar rate soared above the upper limit, however, subscribers had to buy expensive dollars on the foreign exchange market to sell them at a fixed rate to the banks. Companies took legal action against the banks, claiming they failed to warn them of such investment risks. But banks have argued there is nothing wrong with their sales practice.

Among the 23 disciplinary rulings, Citibank Korea received the largest, 14, for extending loans more than it was legally allowed to do so to its employees and executives, as well as for giving mortgages to prospective homebuyers beyond the legal loan-to-value (LTV) rate. The LTV rate currently ranges from 40 to 50 percent, depending on where the home is. It means mortgage takers can borrow money worth between 40 to 50 percent of their home's value from financial institutions.

SC First Bank was also slapped with administrative sanctions three times by the FSS mostly for its inappropriate issuing of mortgages, while KEB was reprimanded six times. In particular, the bank did not properly check borrower's IDs and extended home backed loans to minors.

Rep. Lee said foreign banks have been focusing on extending mortgages to salaried workers and the self-employed to generate easy profits, while refraining from lending money to businesses.

``Rather than provide much-needed liquidity to small companies, foreign banks were eager to sell derivatives and other complex investment products to generate greater profits at relative ease. But businesses suffered large losses. The government should come up with measures to punish those who recklessly promote risky investment products and to protect small firms and low-income earners from falling victim to foreign banks,'' she stressed.

leehs@koreatimes.co.kr