Woori, Hana hit for lax management of overseas offices

Lenders urged to seek quality over quantity

By Lee Min-hyung

Woori Bank CEO Kwon Kwang-seok

Woori Bank and Hana Bank are urged to tighten management of their overseas branches, as they received multiple sanctions over lax control on financial information particularly in Southeast Asia.

According to data from the Financial Supervisory Service (FSS), the two lenders were given five sanctions each in 2019, from their overseas branches in countries such as the Philippines, Indonesia and China. Shinhan Bank and KB Kookmin Bank, other top-tier banks here, did not face any overseas sanctions during the same period.

This raised concerns that some banks have fallen short of maintaining tight control of their overseas business while pushing for aggressive global expansion to find new revenue sources. From a longer-term perspective, lenders' brand reputation may be harmed if they continue to face sanctions and make what appear to be minor mistakes.

Korean banks are going all-out to expand into overseas territories amid saturation in the local market and weak growth in the banking industry largely due to the prolonged low interest rate.

Hana Bank CEO Ji Sung-kyoo

But the sanctions imposed on Woori and Hana show they need to “seek quality over quantity,” even if the global drive, in itself, is a move to ensure their sustainable growth.

Chiefs from the major lenders have voiced the need to find new revenue areas to tackle external market uncertainties. Against that backdrop, the number of foreign offices from top commercial lenders has in recent years been on the steep rise.

With 470 branches abroad, Woori Bank topped the list of the banks with the most overseas offices among the so-called top-four lenders. Hana Bank came in second by operating 199 overseas offices, while the other two lenders run fewer foreign branches.

As of July 1, KB Kookmin operates 39 offices abroad, while Shinhan has only 39 offices outside of Korea.

Weak information management

Shinhan Bank CEO Jin Ok-dong

Last year alone, Woori Bank paid a fine of around 300 million won ($249,000) in its overseas offices from the Philippines, Indonesia and China, according to the FSS.

Specifically, the lender faced three sanctions in the Philippines for its failure in providing reports to the country's central bank and offering misinformation on its loan services. The lender paid fines totaling 10 million won as a penalty for failing to abide by local financial regulations.

In Indonesia, Woori was fined 4.6 million won for making errors when submitting reports to the country's Financial Information Services System. The lender, however, faced the most severe sanctions in China where it did not carry out proper screening processes on foreign exchange investments.

KB Kookmin Bank CEO Hur Yin

A spokesman at Woori Bank said: “The sanctions appear to have come as we have made minor mistakes in handling financial information there.” The lender said it would do its utmost to avoid receiving such sanctions by tightening its management of overseas offices.

Hana Bank also had to pay 255 million won in fines for failing to abide by local financial regulations in countries such as China and Indonesia.

The lender's Chinese branch received three sanctions for poor screening while offering loan services and violations of local foreign exchange regulations.

Hana's Indonesian branch was also given two sanctions in violation of its duty to report its business activities to the local authority and its failure to make accurate and timely reports to the country's central bank.

Hana Bank did not comment on details over the sanctions, saying it would continue to make efforts not to repeat its mistakes and to abide by local regulations.

An industry source urged local lenders to tighten internal discipline for its overseas branches to stop them from being mired in such disputes at a crucial time when they need to speed up their global drive.

“The sanctions they received were mostly from developing countries where financial systems are as stable as those from developed ones,” the source said. “But they have no choice but to continue communicating with local authorities and making efforts not to make similar errors there.”