KIKO Compensation Amounts by Bank Reach Hundreds of Billions... Shinhan Bank Tops with 55 Billion Won

Reviewing Total KIKO Compensation by Major Banks
Hana and Woori Banks Tentatively Accept, Daegu Bank Likely to Accept... Will Shinhan Bank Accept the KIKO Compensation Plan?

[Asia Economy Reporter Kwon Haeyoung] The compensation amounts for the foreign exchange derivative product 'KIKO' that caused significant losses to small and medium-sized enterprises during the 2008 financial crisis have been revealed to reach hundreds of billions of won per commercial bank. With the deadline for accepting the KIKO compensation plan set for the 7th of next month, banks plan to hold board meetings as early as this week to decide whether to accept it.

According to the financial sector on the 28th, Shinhan Bank's total compensation amount related to KIKO is estimated to be 55 billion won, comprising 15 billion won for dispute mediation compensation and 40 billion won for voluntary adjustment compensation.

Following that, KEB Hana Bank's total compensation is 40 billion won, while Korea Citibank and Woori Bank are reported to be around 40 billion won and 20 billion won respectively. Including DGB Daegu Bank and KDB Industrial Bank, which were subject to dispute mediation earlier, a total of 11 banks are estimated to have compensation amounts ranging from several billion won to around 10 billion won per bank.

The Financial Supervisory Service held a dispute mediation committee last month concerning four KIKO-affected companies and decided that six banks should compensate a total of 25.5 billion won. If banks accept the Financial Supervisory Service's compensation recommendation, voluntary adjustments for 147 affected companies will begin. Banks that do not accept the Financial Supervisory Service's dispute mediation plan will not participate in the subsequent voluntary adjustments.

Banks are expected to hold board meetings as early as this week to decide whether to accept the KIKO compensation.

The financial sector is focusing on the decision of Shinhan Bank, which has the largest KIKO compensation amount including voluntary adjustments. It is reported that Shinhan Bank's outside directors are strongly negative toward accepting the KIKO compensation.

A Shinhan Bank official said, "Nothing has been decided yet regarding the acceptance of KIKO compensation," adding, "Since the legal statute of limitations has passed and there is a possibility of breach of fiduciary duty to shareholders, there are still legal aspects that need to be reviewed." There is a sentiment within the bank that passing the board approval will not be easy.

The issue is that some banks have already leaned toward accepting the KIKO compensation plan. One bank reportedly held several meetings with outside directors despite their opposition, with management actively persuading acceptance of the compensation plan.

Hana Bank has indirectly expressed its intention to accept the KIKO compensation plan. Earlier this month, it held a board meeting and decided to participate in a bank consultative body to address voluntary adjustments for additional compensation to KIKO-affected companies. Participation in the bank consultative body is based on accepting the dispute mediation plan recommended by the Financial Supervisory Service last month, which can be seen as a signal of willingness to provide relief to the victims. Woori Bank has also tentatively concluded to accept the KIKO compensation plan. Daegu Bank is likely to accept it as it plans to follow the decisions of commercial banks. If banks gradually accept the KIKO compensation plan, Shinhan Bank will also have to consider reputational risks.

However, it is anticipated that Citibank, a foreign bank, will find it difficult to accept the compensation plan as the decision must be made by the board of its U.S. headquarters. As for the Industrial Bank of Korea, being a policy bank, there is a view that political factors will be considered in the decision-making process since KIKO compensation could become problematic with a change in government.

Some argue that it is difficult to demand compensation from banks, citing that after the 2013 Supreme Court ruling, the supervisory authorities took no action, and now, six years later, KIKO is being revisited, while the statute of limitations for compensation has already expired.

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