November 21, 2024

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Woori Bank logo shows on the glass wall of the bank's headquarters in central Seoul. (Herald DB)

South Korean banks are beginning compensation measures for losses stemming from the misselling of equity-linked securities tied to Hong Kong's Hang Seng China Enterprises Index, with the sector's smallest seller, Woori, leading the initiative.

Woori Bank officially announced Friday it would begin the compensation process next month, in line with the outline issued by the financial watchdog. The decision was made during the company's board meeting that day.

According to Woori Bank, the outstanding balance of its ELS products amounts to approximately 41.5 billion won ($31 million), with maturities beginning on April 12.

"With maturation commencing in April, we aim to promptly determine compensation ratios and provide appropriate compensation for customers whose losses are confirmed," a Woori official said.

The bank refrained from disclosing specific compensation ratios or ranges, citing the need to consider investors' cases individually.

"The ratio will be finalized through individual consultations," the official said.

Industry expectations suggest that Woori Bank's compensation ratio is expected to average around 40 percent, resulting in a total payout of approximately 10 billion won.

Woori Bank stated that it would initiate contact with investors as early as next week. Once both parties agree on the compensation ratio, the payment will be processed within a week, the bank added.

This marks the banking sector's first voluntary compensation plan in line with guidelines set by the Financial Supervisory Service around two weeks ago. According to the FSS' proposal, the compensation ratio is anticipated to range from 20 to 60 percent of losses, with an industry-wide average of 40 percent.

As of December, South Korea had approximately 18.8 trillion won in outstanding ELS products tied to the Hong Kong benchmark index, with 80 percent set to mature within the year. Losses amounted to 1.2 trillion won by February, projected to reach nearly 6 trillion won by year-end.

Banks, responsible for 80 percent of the total, saw KB Kookmin Bank leading with 8.19 trillion won in sales, while Woori Bank had the smallest share at 41.3 billion won. Following an FSS investigation, banks and securities companies were advised to devise voluntary measures based on the guidelines.

In issuing the guidelines, the FSS advised the companies to devise voluntary measures, noting it would consider the remedial efforts in determining sanctions and penalties for the sellers.

The FSS gave out the compensation guidelines based on its two-month probe over local lenders and securities companies who sold large amounts of ELS products tied to the Hong Kong index. Through the investigation, the agency discovered evidence of misselling and advised the companies to draw up voluntary measures based on its guidelines.

Despite substantial losses, banks have been cautious in detailing compensation plans to maintain shareholder trust.

Bearing the least burden, Woori was expected to be the first to initiate compensation efforts. Additionally, it remains the sole local lender currently selling ELS products.

Subsequently, Hana Bank announced it would convene a board meeting Wednesday to discuss ELS compensation, followed by NongHyup Bank and Standard Chartered Bank Korea with meetings scheduled for the next day. Shinhan Bank, which reportedly discussed the issue during its regular board meeting on Thursday but reached no conclusion, is set to schedule another meeting soon. Kookmin Bank is currently undergoing an internal investigation into its ELS sales to decide on compensation measures.

By Choi Ji-won (jwc@heraldcorp.com)
The Korea Herald