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Foreign banks pay big dividends, consulting fees to parent firms

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Published : 2014-05-18 15:48
Updated : 2014-05-18 15:48

Foreign banks operating in South Korea have transferred a large sum of dividends and consulting fees to their parents firms, industry data showed Sunday, triggering a controversy over a massive capital outflow and the local units' financial soundness.

According to the data, two foreign banks -- Citibank Korea Inc. and Standard Chartered Bank Korea -- have paid a total of 3.25 trillion won ($3.18 billion) in dividends and consulting fees to their parent firms over the past 10 years, which is equivalent to 56.2 percent of their combined net profit of 5.78 trillion won over the cited period.

The two banks have paid a combined 1.31 trillion won in dividends during the cited period, but delivered a larger sum of consulting fees totaling 1.94 trillion won to their parent firms.

Previously, foreign financial firms have come under fire for paying too much dividends to their parent firms. But in the past few years, they have seemed to be adopting an alternative method to avoid regulatory pressure, market watchers said.

"There are no clear-cut criteria to calculate consulting fees, which could be assessed arbitrarily," said Jeong Myung-hee, an official at the Korean Financial Industry Union.

The controversy boils down to whether they pay an "acceptable and reasonable" amount to their parent firms, which could entail a dispute over tax evasion as such expenses could be easily inflated to help them pay less taxes.

On a related move, the Financial Supervisory Service, the country's financial watchdog, is planning an inspection on Citibank Korea to review whether the foreign bank's consulting fee payment is appropriate.

"It needs measures to tackle the controversy if they are paying consulting fees expediently," said an official at the FSS (Yonhap)



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