"Stop the Bank Money Party"... Thorough Disclosure of Employee Bonuses and Severance Pay

'Improvement Measures for Banking Sector Management and Sales Practices' Task Force (TF)
Executive Bonuses to Be Deferred for Up to 5 Years
Bank Social Contributions Also to Be Disclosed

From now on, the performance bonuses, voluntary retirement payments, and dividend status of bank executives and employees will be disclosed in detail. Banks will also reveal their management status so that the public can easily understand what banks do, how they generate profits, and how the profits are utilized.

The Financial Authorities' task force (TF) on "Improvement Measures for Banking Sector Management and Business Practices" has prepared these measures to improve the bank performance compensation system.

Creating a Bank Management Status Disclosure Report

Banks must prepare and publicly disclose a pilot "Bank Management Status Disclosure Report" during the third quarter of this year. The content to be prepared this time will be based on last year's management status. For management status after this year, the report must be prepared and announced by the end of April of the following year.

The report will include basic bank overviews such as total assets, branches, and number of employees, as well as details on assets and liabilities, income and expenses, and the use of net income for the current period.

In particular, the income and expense section must specify interest income including the interest rate spread between loans and deposits, fee income, salaries including performance bonuses and voluntary retirement payments, social contribution achievements, and provisions. The net income section will include capital reserves and dividend status.

A Financial Services Commission official stated, "The specific disclosure method will be determined when the report is released in the third quarter."

The performance compensation system for executives will also change to prevent a "performance bonus feast" focused on short-term results. The minimum ratio of deferred payment of performance bonuses for financial sector executives will be expanded from the existing 40% to 50%. The deferral period, originally 3 years, will be extended to 5 years.

Lee Bok-hyun, Governor of the Financial Supervisory Service, is delivering opening remarks at the Bank Holding Companies Chairmen Meeting held at the Bankers' Hall in Jung-gu, Seoul, on the 5th. Photo by Dong-joo Yoon doso7@

Additionally, individual registered executives will be required to explain their compensation payment plans at shareholders' meetings, and disclosure of individual executives' compensation amounts will be strengthened.

Banks' social contribution activities will also be disclosed with designated disclosure items. Domestic banks' social contribution expenditures amount to about 1 trillion KRW annually. However, according to regulatory investigations, some disclosure items included fees for brand usage that did not align with the purpose of social contributions, and in some cases, statutory contributions to the Korea Inclusive Finance Agency were also included.

Kim So-young, Vice Chairman of the Financial Services Commission, said, "We will systematically classify social contribution disclosure items according to their purpose and nature, and disclose qualitative achievements such as the Youth Leap Account in addition to quantitative aspects," adding, "We will prepare detailed improvement measures by August."

Measures have also been established to address the reduction in the number of bank branches due to the spread of internet and mobile transactions. When deciding to close a bank branch, opinions from users will be collected in advance, and alternative means such as joint branches and mobile branches will be provided upon closure.

"Stop Interest-Only Business"... Expanding Investment Advisory and Venture Investment Opportunities for Banks

Furthermore, the financial authorities plan to activate banks' asset management services such as investment advisory. They will introduce convergence services between financial and non-financial sectors through banks and expand banks' venture investments. These measures aim to reduce banks' dependence on interest-based profits.

The approach involves analyzing customer information shared through MyData and then providing customized product recommendation services. While previously only real estate-related advice was possible, in the future, financial product advice will also be available.

Vice Chairman Kim said, "We will expand trustable assets and support the development of various trust products through collaboration with non-financial professional firms such as hospitals and accounting firms," adding, "To this end, we will submit a revision bill to the Capital Markets Act to the National Assembly in the second half of this year." The path for banks to enter non-financial businesses will also be opened. The Financial Services Commission plans to announce detailed measures within the third quarter of this year.

Kim So-young, Vice Chairman of the Financial Services Commission, is giving a briefing on "Measures to Improve Banking Sector Management, Business Practices, and Systems" on the 3rd at the Government Seoul Office in Jongno-gu, Seoul. Photo by Yoon Dong-joo doso7@

This month, regulations on banks' investment limits in venture funds will also be relaxed. The key point is to ease the limit from within 0.5% of their own capital to within 1.0%. Last year, the five major commercial banks' venture investment amount was 775.8 billion KRW.

Domestic banks' overseas expansion will also be facilitated. As of the end of last year, domestic banks had 207 overseas branches. The net income from overseas branches accounted for less than 10% of the total net income of the banking sector.

Vice Chairman Kim stated, "We will improve regulations so that overseas branches or subsidiaries can compete equally with local financial companies without restrictions on overseas business activities caused by domestic laws," adding, "We plan to announce improvement measures within this month."

These policies stem from the intention that domestic banks should move away from earning money based on the interest income derived from the spread between loan and deposit interest rates. The proportion of interest income in domestic banks' total income increased significantly from 88% at the end of 2018 to 94.3% at the end of 2022.

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