FSS, “Private Banking Supervision”

As the private banking (PB) of the bank for customers who deposit large amounts of money has been activated, Financial Supervisory Service (FSS) has started an active supervision to prevent the financial accidents.

FSS official said on October 15, “There are over 10 banks with PB. Because the bank clerk can have a close relationship with customers in PB and so the bank could have a high risk of financial accidents. Accordingly, we plans to start the supervision of the field”.

Because PB customers are small in number, but have a large part of total deposits in bank, if there is no proper internal control system, the large financial accident could occur.

In August, one bank clerk of Korea Development Bank (KDB) concealed KRW 0.5 billion from the bankbook of PB customers voluntarily. Banks have concentrated on obtaining the customers through PB to increase profitability this year.

Cho Hung Bank has started the PB service in September and Kookmin Bank will operate the PB center from November. Citi Bank plans to start the PB service for customers who deposit over 1 billion in bank in November.

Banks have started the PB service because they cannot make profits through Net Interest Spread from general customers owing to low interests.

Banks which have introduced the PB service, prefer to PB customers because they occupy the large part of total deposits and give profits from a sale of beneficiary certificates.

FSS official said, “Insurance companies also have expanded an area of supervision considering that a hot wind of PB will be continued through making the total asset management center”.

Dong-Won Kim daviskim@donga.com