Borrowers Forced to Buy Funds
By Yoon Ja-young
Staff Reporter
Banks have been found to have been forcing their customers to buy equity and other funds in return for extending loans, a practice prohibited by regulators.
The Financial Supervisory Service (FSS) said Tuesday that it has censured executives and employees of eight banks, including Kookmin, Woori, Shinhan, Hana, Citibank Korea, SC First Bank and Korea Exchange Bank, and an unspecified provincial bank, for the unfair practices.
It found 358 cases at 157 branches in which the banks urged customers to subscribe to fund products before they got loans. The amount of the enforced fund investment stood at 2 billion won for 297 borrowers.
``The competition among banks to sell more funds made them drive customers to fund subscription,'' Kim Dae-pyung, a deputy governor of the FSS said. He said the FSS would strengthen supervision on unfair practices.
While banks are competing to give loans to high-income professionals and people with good collateral or excellent credit ratings, the door is still closed for the self-employed or small businesses.
Those who sought loans were often forced to subscribe to an installment deposit in the past, but the growing popularity of funds following the bullish stock market made them turn their eyes to fund products. Banks get around a 1.5-percent commission from the sales of funds.
Banks are known to allocate employees to get a certain number of new customers to subscribe to funds, credit cards, deposit accounts, or even insurance. This practice is a burden not only for the bank employees but also for customers and the employees' friends and relatives who subscribe to the product reluctantly. Insurance companies have also complained about the unfair sales by banks after the introduction of bancassurance.
The financial regulatory body inspected banks' fund sales for the last three months. It also has been examining fund sales by securities firms from May. It caught a number of securities firms not fully explaining about their investment products to investors, and plans to take measures against this violation soon.