Banks to fix employee evaluation system
Woori Bank and KEB Hana Bank have decided to overhaul their employee evaluation system to prioritize customer satisfaction over profit in a bid to avoid the recurrence of the mis-selling of high-risk products.
The decision is a much-belated move to restore lost trust after the financial authorities concluded their mis-selling of a set of high-risk derivatives caused major investor losses.
The product in question is a derivative-linked fund (DLF), which is structured to track the performance of underlying assets such as interest rates and government-issued bond yields. Their returns are determined by movements of those underlying assets.
The two banks plan to revise employee evaluation criteria measured by Key Performance Indicators (KPIs) to give higher grades to those who help boost customer profit.
This is a major change from the existing evaluation scheme, under which factors unrelated to banks’ profit including service fee income had been largely dismissed.
Major revision concerning KPI, a type of performance measurement, is expected as certain indicators showed employees of the two banks were required to prioritize non-interest income over consumer protection.
Indicators provided by the Financial Supervisory Service (FSS) showed private banking sales officials of the two banks were evaluated up to 27 percent on their non-interest income performance, while customer protection accounted for as low as 2 percent and only up to 5 percent.
This emphasis — or pressure — on sales performance was up to seven times greater than their competitors, the FSS said.
In addition to the indicator revision, Woori Bank said it would set up a “customer care” unit devoted to inform investors about their products’ performance in real time followed by timely consultations from wealth management professionals.
In an effort to better manage after-sales services for financial products, Woori will launch a new system to better manage its corporate and private borrowing.
KEB Hana Bank said it would set up a customer analysis center where investors will be accurately informed about how much of a risk there was before making “risky bets.”
A one-on-one consultation will be provided by private bankers to ensure objective recommendations on investment.
The bank will put a ceiling on the initial investment amount corresponding to the customers’ bank account balance, to help in the safe management of their investment portfolio.
This means the bank’s sales officials will not be able to process risky investment requests regardless of earlier consent from investors who said they were willing to accept losses following an “aggressive” investment.
KB Kookmin Bank plans to add an investment product review unit designed to better help risk assessment.
It is widely believed that the DLF fiasco came as a result of the financial groups’ blind push to maximize profits by urging bank employees to bolster sales in non-interest income amid growing calls to diversify sources of revenue.
Woori Financial Group and Hana Financial Group reported 611.7 billion won and 1.1 trillion won in non-interest income, respectively, in the first six months of 2019.
Of Woori group’s income, 565.6 billion won, or 92 percent, came from Woori Bank. For Hana group, 39 percent, or 438.8 billion won, came from KEB Hana Bank.
According to the FSS, individual investors invested a total of 795 billion won ($661 million) in the controversial DLF products sold by the two.