"How to Handle KIKO" Shinhan Bank Ponders 55 Billion Won Compensation Plan (Comprehensive)

Total Compensation for Major Banks' KIKO Cases Estimated at 40-50 Billion KRW... Shinhan Bank's Compensation Highest at 55 Billion KRW
Hana and Woori Banks Tentatively Agree, 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 the plan.

According to financial authorities on the 28th, Shinhan Bank's total compensation amount related to KIKO is estimated at 55 billion won, consisting of 15 billion won from dispute mediation compensation and 40 billion won from 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 at approximately 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.

Last month, the Financial Supervisory Service held a dispute mediation committee regarding four KIKO-affected companies and decided that six banks should compensate a total of 25.5 billion won. The recommendation was for banks to compensate 15-41% of the total damages to the affected companies. If banks accept the Financial Supervisory Service's compensation recommendation, voluntary adjustments for 147 affected companies will begin. Banks that do not accept the 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 when including voluntary adjustments. It is reported that Shinhan Bank's outside directors are strongly negative toward 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 to review." There is a sense 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 opposing the plan, with management actively persuading acceptance.

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 presupposes acceptance of the dispute mediation plan recommended by the Financial Supervisory Service last month, effectively signaling a move toward relief for the victims. Notably, Hana Bank made this decision despite its compensation amount reaching 40 billion won due to its acquisition of Woori Bank, which had heavily sold KIKO, in 2012. Woori Bank has also tentatively concluded to accept the KIKO compensation plan. Daegu Bank is likely to accept as it plans to follow the decisions of commercial banks. If banks successively accept the KIKO compensation plan, Shinhan Bank will also have to consider reputational risks.

However, foreign banks such as Citibank are expected to find it difficult to accept the compensation plan as the decision depends on the board of directors at their U.S. headquarters. KDB Industrial Bank, as a policy bank, may have political considerations influencing its decision-making process regarding KIKO compensation. KIKO was identified by the Democratic Party of Korea in August 2017 as one of the three major financial evils. There is also a view that compensation for KIKO could become problematic if the government changes.

Overseas, there have been numerous cases where banks actively compensated for incomplete sales of products similar to KIKO. The UK's Financial Conduct Authority (FCA) ordered compensation of 2.1 billion pounds (approximately 3.3 trillion won) for 13,936 interest rate hedge products (45% of the total) between 2013 and 2016, prompting banks to pay compensation. The Japanese Bankers Association (JBA) compensated 20-30% for 1,169 foreign exchange derivative products (76.6% of the total) between 2011 and 2017.

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

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