Fund Freeze and Decline in Face-to-Face Transactions Lead to Sharp Drop in Bank Complaints

Last Quarter of Last Year Sees 572 Financial Complaints, a 30% Sharp Drop from Previous Year
Lime and Optimus Scandal Resolution Begins, Related Fund Transactions Decrease
Industry Struggles to Prepare Measures Against Potential Complaint Increase Ahead of Financial Consumer Protection Act

[Asia Economy Reporter Song Seung-seop] In the fourth quarter of last year, complaints related to financial transactions received by banks and the Financial Supervisory Service reached the lowest level since records began. This is attributed to a decrease in investment product transactions following the Lime and Optimus private equity fund scandals, as well as a significant reduction in visits to offline branches due to the spread of non-face-to-face transaction culture.

Financial Sector Complaints Drop from 806 to 572... Lowest Since Records Began

According to the Korea Federation of Banks on the 10th, the number of complaints received by financial companies and the Financial Supervisory Service in the fourth quarter of last year was 572, the lowest since the first quarter of 2015 when statistics were first disclosed. This represents a decrease of about 30% compared to 806 complaints in the same period last year, and an 11.46% (74 cases) decrease compared to the previous quarter.

By product type, other complaints related to complex product sales such as electronic finance, funds, and bancassurance were the most frequent at 240 cases. Loan-related complaints followed with 166 cases, then 86 cases in the deposit sector, and 67 cases related to credit card services. Foreign exchange-related complaints were the fewest at 13 cases.

Among the four major banks (KB Kookmin, Shinhan, Hana, and Woori), Woori Bank saw the largest decrease. The number of complaints at Woori Bank was 74, down 69.79% from 245 cases a year earlier. Compared to the third quarter, it also decreased by 28.16% (29 cases).

Complaints received by Hana Bank also dropped nearly by half from 126 to 63 cases. Quarterly, it decreased from 98 cases by 35.7%, showing the steepest decline. Shinhan Bank recorded 109 cases in the fourth quarter, a decrease of about 9.92%, while Kookmin Bank had 119 cases, down 2.46%.

As Lime and Optimus Scandals Are Addressed and Related Product Transactions Decline, Complaints Also Decrease

Financial sector complaints, which had surged due to the Lime and Optimus scandals, appear to have subsided as the Dispute Mediation Committee and the Sanctions Review Committee proceeded. Hana Bank saw a significant increase in complaints from 2019 as it sold Lime Asset Management’s trade finance funds and acted as the custodian for Optimus funds. Woori Bank also faced strong protests from investors after selling large amounts of Lime funds.

In response, financial authorities began serious efforts to resolve the private equity fund scandals in the second half of last year, and banks agreed to some of these measures. In August last year, Hana Bank and Woori Bank accepted the Financial Supervisory Service’s dispute mediation proposal for “full compensation of investment principal,” returning 36.4 billion and 65 billion won respectively to investors. This was the first time the Dispute Mediation Committee recommended 100% compensation. CEOs of each affiliate also showed strong efforts to resolve the situation and protect consumers.

It is also analyzed that the financial sector has been reluctant to sell related products after the private equity fund scandals, and consumers have refrained from purchasing them. Due to risk concerns, transactions themselves have decreased, leading to a reduction in complaints. According to the Korea Financial Investment Association, the balance of derivative-type private equity fund sales decreased monthly from 31.8954 trillion won on October 2019 to 22.9835 trillion won at the end of January. Other complaints related to fund and financial product sales also dropped significantly from 420 in the fourth quarter of 2019 to 240 currently.

A financial sector official explained, "In the case of Woori Bank and Hana Bank, the private equity fund sales were suspended for a certain period, which likely shrank the overall related market. Since new private equity fund transactions are still insufficient, it is understood that related complaints are also rarely received over time."

There is also an opinion that the sharp decline in visits to physical branches due to COVID-19 contributed to this trend. Typically, complaints within the banking sector itself are two to three times higher than external complaints reported to financial authorities. However, with the recent increase in non-face-to-face and digital financial demand, the difference between internal complaints (292 cases) and external complaints (280 cases) has become minimal.

Meanwhile, commercial banks are preparing countermeasures fearing that complaints may surge again ahead of the enforcement of the Financial Consumer Protection Act. KB Kookmin Bank is checking the current status and establishing a consumer protection system through a task force (TF) centered on each product department. Woori Bank is operating a non-face-to-face training program to strengthen the capabilities of all employees.

This content was produced with the assistance of AI translation services.