Banks to Conclude KIKO Compensation by End of January... Woori, Hana, and Daegu Banks Likely to Accept Compensation Plans (Comprehensive)

[Asia Economy Reporter Kwon Haeyoung] 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 a realistic 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 compensate.

According to the financial sector on the 6th, among the six banks subject to the KIKO dispute adjustment, three banks have conveyed to the authorities that they could not decide whether to accept the compensation recommendation issued by the FSS Dispute Adjustment Committee on the 13th of last month and requested a one-time extension of the deadline. 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 for 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 by that time."

The banks recommended for compensation to the four KIKO-affected companies subject to this adjustment 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 Citi (600 million KRW), totaling six banks. Woori and Hana Banks are reported to be positively considering acceptance. Daegu Bank plans to follow the decisions of commercial banks, so it is expected to eventually accept.

A bank official said, "The Dispute Adjustment 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 the management makes a decision, it must be approved by the board. Especially in banks where outside directors have significant influence, the board may oppose KIKO compensation. The 2008 KIKO incident, the 2013 Supreme Court ruling recognizing incomplete sales, the long time elapsed, and the possibility that compensation could become problematic if the administration changes are also burdens 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, "It will be difficult to reach agreements on about 150 cases of voluntary adjustments between banks and companies if the adjustment plan is accepted."

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

Currently, the six banks are reportedly exchanging opinions through unofficial channels. Jeong Seongwoong, Deputy Director of the FSS who has been overseeing the KIKO dispute adjustment, personally visited bank presidents last November before issuing the compensation recommendation to actively explain the necessity of compensating affected companies. Although the situations and attitudes vary by bank, it is expected that banks will begin to accept 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. The UK Financial Conduct Authority (FCA) ordered compensation of 2.1 billion pounds (about 3.3 trillion KRW) for 13,936 interest rate hedge product cases (45% of the total) from 2013 to 2016, prompting banks to compensate, and the Japan Bankers Association (JBA) compensated at a level of 20-30% for 1,169 foreign exchange derivative product cases (76.6% of the total) from 2011 to 2017.

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