Bank KEB Hana Indonesia, a subsidiary of KEB Hana Bank set up in Indonesia, is facing allegations that it sold a financial product to its customers without giving accurate information about it.
The bank sold the product to more than 1,600 customers, with 474 of them being Korean residents in Indonesia and the remainder Indonesian customers.
The Korean residents who bought the product are complaining that the bank sold it to them as an installment savings product, while it was actually a savings-type insurance policy, which can be seen as an investment product.
The product in question is “JS Proteksi Plan”, a one-year savings-type insurance product developed by Asuransi Jiwasraya, a state-run Indonesian insurance company. The product gained popularity as it guaranteed an interest of 6 to 9 percent per year, which was more than 1 percentage point higher than the average interest on deposits. It also paid subscribers a cash reward amounting to 0.25 percent to 0.5 percent of the subscription amount.
Bank KEB Hana Indonesia was one of the banks that sold the insurance product to earn commissions. The average subscription amount per person is about 100 million won, but some Korean customers have purchased policies worth more than 1 billion won.
Bank KEB Hana Indonesia is estimated to have earned 2 billion won to 3 billion won in commissions annually through the product.
The problem was that the Indonesian insurance company failed to refund principal to its customers when the product matured in October and December. The insurance company is suffering a liquidity shortage due to accounting fraud allegations against it.
Asuransi Jiwasraya recently told Bank KEB Hana Indonesia that it would resume refunding principals to its customers in February and would pay an annual interest of 7 percent upfront to customers who agree to extend their contracts.
The biggest problem is that the Indonesian insurance company is delaying payment, but the customers of Bank KEB Hana Indonesia also point to the bank’s "incomplete sales" of the product. They claim that the bank introduced the product as installment savings and not as an investment product.
A Korean resident who signed up for the product said that the information sheet provided by the bank describes it as a deposit and explains the deposit rates (Rate Deposito) paid to subscribers. “When I asked whether it was an investment product or not, a bank official definitely told me that the product gives 9 percent interest,” he said. "Many Korean residents here are retired immigrants or company employees who need to rent a house when they return to Korea. If they had known that it was an investment product, they would not have signed up for it," he added.
Another Korean resident said, "I subscribed to the product as I trusted KEB Hana Bank, but there was no mention of risks in the promotional materials the bank produced and distributed."
Korean residents who purchased the product formed a group of victims and filed complaints with Indonesia's Ministry of State Owned Enterprises, the Korean Embassy in Indonesia, the petition board of Cheong Wa Dae, and the Korean Financial Supervisory Service. They also brought the issue to the bank’s Korean parent, KEB Hana Bank, but were told that the Korean headquarters could not engage in the business of Bank KEB Hana Indonesia because it is a separate corporation.