Posted by M Laavanya, Year 3 undergrad at the School of Accountancy, Singapore Management University
Korean banks pressured to regain trust after fraud cases
Saturday, January 3, 2015
By Suk Gee-hyun ,The Korea Herald/Asia News Network
The year 2015 is going to be a challenging one for South Korean financial institutions, which face a series of penalties for loan and accounting fraud, as well as pressure to find new business models in the financial technology sector. Local banks, for instance, are expected to begin the year with hundreds of administrators and employees receiving sanctions for their irregularities. The Financial Supervisory Service is poised to take disciplinary action in the next two months against officials involved in loan fraud at KT ENS, the accounting fraud at Moneual and Shinhan Bank’s illegal access to customer accounts.“Not a small number of people will be punished, since these are all large-scale frauds. We just finished reviewing related documents and we will speed up the disciplinary procedures (to finish in early 2015),” an FSS official said on condition of anonymity.
As for the KT ENS incident, nearly 100 employees at 13 local banks are expected to receive penalties for extending a total of 1.83 trillion won (US$1.71 billion) in loans without verifying the borrowers’ documents.
The banks include Kookmin, NongHyup and Hana Bank, which is known as one of the biggest victims of the fraud. Hana Bank officials confirmed it suffered nearly 160 billion won in losses.
While the banking sector has yet to provide effective solutions to plug the cybersecurity loopholes, they are still rushing to adopt financial technology innovations to seek fresh opportunities amid ongoing sluggish growth in the banking sector.
“Fintech has become a huge boon of opportunity for banks, rather than being a threat,” said financial tech startup Viva Republica CEO Lee Seung-gun.
Lee, who is a pioneer in the financial technology sector, said banks would soon cooperate with financial tech startups to replace traditional financial services.
According to U.S. research firm Gartner, global mobile payment transactions totaled US$235.4 billion in 2013, a 44 percent increase from 2012 values of US$163.1 billion. The number of mobile payment users worldwide has nearly 245.2 million in 2013, up from 200.8 million in 2012.
The value of Korean mobile payment transactions reached 3.2 trillion won as of the second quarter in 2014, a 137 percent increase from the same period the previous year.
South Korea was a latecomer in the market, but it is showing rapid growth, especially after financial regulators promised to ease related regulations to support the financial industry.
“Demand for fintech services is growing from both (companies and consumers), as they can help simplify the payment procedures, reduce fraud and save costs to ultimately help the financial sector as a whole move forward,” said Korea Development Bank analyst Kim Daniel.