Shinhan Falls into 'Lime Bunker'... 1.1 Trillion Won Transferred, Largest Among Holding Companies

Shinhan Financial Group Faces Emergency with 1.1242 Trillion KRW Lime Fund Risk Exposure in Banking and Securities
Shinhan Investment Corp. Suspected as Accomplice, Shinhan Bank Exploited for Lime Fund Circular Transactions Including Normal Funds
Will Shinhan Financial Group's Non-Bank Strengthening Strategy Be Impacted?

[Asia Economy Reporter Kwon Haeyoung] Shinhan Financial Group, which avoided the fallout from overseas interest rate-linked derivative-linked securities (DLS), is now suffering from the Lime Asset Management scandal. This is because the sales and loans of Lime Asset Management funds, which have been managing returns through 'rolling over' debts, exceed 1 trillion won, making it the largest among domestic financial holding companies. As Shinhan Investment Corp. is also suspected of being involved in Lime Asset Management's fraud, the approval of its issuance business is expected to face difficulties, and the issue could escalate into internal control problems within the group, deepening Shinhan Financial's concerns.

According to the financial sector on the 16th, Shinhan Financial's exposure to Lime Asset Management funds exceeded 1.12 trillion won as of the end of November last year.

Looking at the sales balance by financial holding subsidiaries, Shinhan Financial sold a total of 774.2 billion won worth of Lime Asset Management funds through Shinhan Bank (393.4 billion won) and Shinhan Investment Corp. (380.8 billion won). In addition, if the 350 billion won loan that Shinhan Investment Corp. provided to the troubled Trade Finance Fund through a total return swap (TRS) contract with Lime Asset Management is added, a total of 1.1242 trillion won of company and investor assets are tied up in Lime Asset Management.

Woori Financial Group ranked second with 518 billion won (Woori Bank) in Lime Asset Management fund sales, followed by KB Financial Group with 357.7 billion won (KB Securities), NH Nonghyup Financial Group with 166.7 billion won (NH Investment & Securities 120.5 billion won, NH Nonghyup Bank 46.1 billion won), and Hana Financial Group with 145.4 billion won (KEB Hana Bank 141.5 billion won, Hana Financial Investment 3.9 billion won).

Although Shinhan Financial has been regarded as the 'management expert,' its exposure to Lime Asset Management funds is the highest among financial holding companies, and the fallout has spread even to the bank, which was considered safe from troubled funds, putting the entire group on high alert.

The biggest problem lies with Shinhan Investment Corp. The Financial Supervisory Service has decided to request an investigation, judging that Shinhan Investment Corp. was aware of the troubles in Lime Asset Management's Trade Finance Fund and was complicit in the fraud. Shinhan Financial expresses frustration, claiming it was 'victimized' by Lime Asset Management's illegal activities, but it is uncertain where the fallout will spread, and there are concerns it could escalate into a group-wide internal control failure.

Shinhan Bank is also in an emergency situation. It was recently confirmed that out of the 270 billion won invested in normal funds sold by Shinhan Bank, 100 billion won flowed into Lime Asset Management's troubled funds.

This incident is expected to inevitably deal a blow to Chairman Cho Yong-byoung's strong push to strengthen the non-bank sector. Chairman Cho, who has experience as the CEO of Shinhan BNP Paribas Asset Management, has a deep understanding of capital markets including banking, securities, and asset management, and planned to develop Shinhan Investment Corp. into a mega investment bank (IB). However, with Shinhan Investment Corp. caught up in the Lime scandal, it is widely expected that the financial authorities will find it difficult to designate it as a mega IB and approve its core issuance business.

Within the financial sector, there is a strong view that the responsibility for this incident lies with the asset management company. In particular, Lime Asset Management shamelessly engaged in 'reckless management,' arbitrarily transferring assets from normal funds sold by Shinhan Bank to troubled funds, contrary to the original management prospectus. However, it is also anticipated that the sales companies will find it difficult to completely avoid responsibility.

A financial sector official said, "With Shinhan Bank also caught up in the Lime scandal, the issue is spreading to the entire financial holding group. Especially regarding whether the sales companies responded appropriately during the deterioration of Lime Asset Management funds, whether they intentionally or negligently exacerbated the damage, and whether there was any mis-selling, these are separate issues, so it will be difficult for sales companies to be exempt from responsibility in the future."

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