Tue, Dec 24, 2013 page15

• Citi, Standard’s S Korean units told to probe leaks

  CLIENT DATA: A Citibank employee and an information technology firm worker have been arrested for selling information on thousands of clients to lending agents

  • Bloomberg
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  South Korea’s financial regulator ordered Citigroup Inc and Standard Chartered PLC’s units to investigate allegations that staff members or contract workers sold client information to private lending agents.

  The Financial Supervisory Service (FSS) is waiting to hear from Citibank Korea Inc and Standard Chartered Bank Korea Ltd about the internal probes before deciding whether to conduct its own investigation, Lee Sang-koo, director-general of the agency’s bank supervision team, said by phone yesterday.

  The FSS may begin inspecting the two banks regarding the allegations, the Seoul Economic Daily reported, without citing anyone.

  The South Korean prosecutors’ office said in a Dec. 11 statement it arrested an employee of “Bank C” for leaking information on 34,000 clients, including details of lending contracts.

  Citibank Korea confirmed in an e-mail yesterday that it was “Bank C.” The Seoul-based unit conducted its own investigation at the FSS’ request following the arrest, it said, without elaborating on the results of the probe.

  The prosecutors’ office also arrested a worker from an information technology company contracted to a lender identified only as “Bank S” for stealing 104,000 clients’ information, according to the Dec. 11 statement.

  The office is separately investigating 10 private lending agents, it said, without naming them.

  The data was sold at up to 500 won (US$0.47) per piece of client information, the statement said.

  The leaks were the “biggest ever” incurred by banks, prosecutors said.

  Standard Chartered and Citigroup have seen their US$6 billion bet on South Korea turn sour in less than 10 years, as the two banks struggle to sustain profits in an economy plagued by rising household debt.

  Standard Chartered took a US$1 billion writedown on the value of its business in the country in August, a cost that is set to end the London-based lender’s 11-year streak of record annual profits.

  At Citigroup, South Korea will hurt revenue in Asia through next year, chief financial officer John Gerspach has said.

  South Korean lenders have seen their return on equity (ROE), a measure of profitability, shrink by more than half over the past decade when Standard Chartered and Citigroup first pledged the largest-ever foreign investment in the country’s financial industry. With the government stepping up efforts to curb household debt, foreign banks have been left seeking ways to cut costs.

  “Banks will have to accept the new normal of low growth, low return on equity,” said Yoo Sang-ho, a Seoul-based banking analyst at HI Investment & Securities Co. “They have to forget what they saw in the mid-2000s.”

  Over the past five years, South Korean economic growth slowed to 2.9 percent from an average 5.8 percent in the nine years through 2008, according to the IMF, as household debt swelled.

  At the same time, commercial banks saw their return-on-equity slump to about 7.4 percent last year from 20.3 percent in 2005, FSS data showed.

  South Korean President Park Geun-hye, who took office in February, has pledged to ease consumer debt burdens by restructuring loans for low-income earners. The move follows measures already in place since 2006 limiting the amount people can borrow depending on their income and home values. In 2011, the financial regulator asked banks to provide more fixed-rate loans to reduce risks from increases in interest rates.

  “Rules that limit household lending must have hammered profits at foreign banks who rely more on retail business than their domestic peers,” said Kim Hye-mi, a researcher at Seoul-based Hana Institute of Finance.

  Profit of all 18 lenders in the country, including Standard Chartered and Citigroup, fell 42 percent to 4.8 trillion won in the first nine months of the year, as lending slumped and margins on loans shrank to a four-year low, the FSS said.

  Standard Chartered, which does not provide quarterly earnings figures, said in August its South Korean consumer unit posted a loss of US$6 million after a US$100 million profit a year ago. Consumer banking revenue in the country may drop about 15 percent this year, it said on Dec. 4, without giving details.

  Net income at Citibank Korea fell 28 percent from a year earlier to 145 billion won in the nine months ended September, figures from the US firm’s local unit show. Its ROE declined to 3.3 percent last year from 15.7 percent in 2005, the first full year after it bought Koram Bank.
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