Counterbalancing deposit

A counterbalancing deposit (구속성예금/拘束性預金) refers to the deposit which a borrower is forced by the lender to put with the bank.

In the United States, most of commercial banks require bank customers to deposit more than the minimum amount to compensate overall costs incurred from issuing and processing customers' personal checks.

Key words
counterbalancing deposit, Kkeoggi, unfair banking practice, Bancassurance, deposit for security

Making a little sense
The counterbalancing deposit is supposed to be used for the repayment of the loan concerned. In banking practices in Korea, such counterbalancing deposit called "Kkeoggi" (꺾기) has been demanded by bank employees just before and/or after the execution of the proposed loan agreement for the purpose of individual achievement in collecting deposits, trusts and other bank products as well as security.

Unfair practice
The financial supervisory authorities have prohibited such unfair banking practice because: Recently bank employees try to evade crack-down by soliciting Bancassurance products, from which they may receive considerable amount of commission. According to the recent survey, one out of four Small and Medium Enterprises (SMEs) answered they were forced to buy Kkeoggi products including Bancassurance during the past one year. The Financial Services Commission (FSC) stepped up its campaign to prohibit such unfair practices.
 * It is out of volition of the borrower;
 * It increase the substantial interest rate of the loan; and
 * It limits the availability of funds as for the borrower.
 * FSC is reinforcing its one percent rule: More than one percent per month of the aggregate amount of financial products bought by the bank customer for the period from one month prior to the execution of the concerned loan agreement to one month thereafter shall be regulated as the amount of Kkeoggi.
 * In case of insurance or fund products sold to SMEs and low-credit standing customers, there is no threshold percentage per month.
 * The cases where the representative, officers, employees and their relatives of SMEs are solicited and forced to buy the financial products shall be included in such unfair practices.