Banks to Conclude KIKO Compensation by End of January... Woori, Hana, and Daegu Banks Likely to Accept Compensation Plan

Ahead of the deadline on the 8th, 3 out of 6 banks have not decided to accept and requested a delay... The remaining 3 banks are also expected to request an extension
Financial Supervisory Service to set a new deadline and re-notify... Banks likely to express willingness to comply starting late this month

[Asia Economy Reporter Haeyoung Kwon] Banks have requested the Financial Supervisory Service (FSS) to extend the deadline for deciding whether to accept the compensation adjustment plan for companies affected by the foreign exchange derivative product 'KIKO,' which is currently set for the 8th. The FSS has acknowledged that there was insufficient time for practical review and plans to accept the request, so the final decision on compensation is expected to be made by the end of this month. Woori, KEB Hana, and Daegu Bank are highly likely to accept the plan, and some banks are reported to have tentatively concluded to provide compensation.

According to the financial sector on the 6th, three of the six banks subject to the KIKO dispute mediation did not decide whether to accept the compensation recommendation issued by the FSS Dispute Mediation Committee on the 13th of last month and requested the authorities to postpone the deadline once. The FSS expects the other three banks to also request an extension.

An FSS official said, "Banks have conveyed opinions to extend the decision deadline on the KIKO adjustment plan to the end of this month due to internal legal reviews, etc. Since the requested deadlines differ for each bank, we plan to set a new deadline for the six banks and ask them to decide whether to accept the plan by that time."

The six banks recommended to compensate the four KIKO-affected companies subject to this mediation are Shinhan (15 billion KRW), Woori (4.2 billion KRW), KDB Industrial (2.8 billion KRW), Hana (1.8 billion KRW), Daegu (1.1 billion KRW), and Korea Citibank (600 million KRW). Woori and Hana Banks are reportedly reviewing the possibility of acceptance positively. Daegu Bank plans to follow the decisions of commercial banks, so it is expected to eventually accept the plan.

A bank official stated, "The Dispute Mediation Committee is a legal body, so even if the adjustment plan is accepted, there are no issues of breach of trust or statute of limitations, according to the FSS explanation. Although additional legal review is necessary, we have practically concluded to accept the compensation recommendation for the four KIKO-affected companies."

The variable is the board of directors. Even if management makes a decision, board approval is required. Especially in banks where outside directors have significant influence, the board may oppose KIKO compensation. The fact that much time has passed since the 2008 KIKO incident and the 2013 Supreme Court ruling recognizing incomplete sales, and that compensation could become problematic if the government changes, also poses a burden for banks.

A financial sector official said, "Overall, banks do not want to confront the FSS, so there is a trend to accept the compensation recommendation for the four KIKO-affected companies," but added, "For about 150 cases where autonomous adjustment between banks and companies will occur upon acceptance of the adjustment plan, mediation is unlikely to be easily established."

The FSS estimates that besides the four companies subject to this mediation, there are 147 companies eligible for autonomous adjustment, and the total compensation amount for 11 banks is expected to exceed 200 billion KRW.

Currently, the six banks are known to be exchanging opinions through unofficial channels. Jeong Seong-woong, Deputy Director of the FSS who has been overseeing the KIKO dispute mediation, personally visited bank presidents in November last year before issuing the compensation recommendation to actively explain the necessity of compensating affected companies. Although each bank’s situation and stance differ, banks are expected to start accepting the adjustment plan one after another by the end of this month.

Meanwhile, overseas in countries such as the UK and Japan, banks have accepted financial authorities' recommendations or voluntarily compensated companies for incomplete sales of foreign exchange derivative products similar to KIKO.

This content was produced with the assistance of AI translation services.