Woori Bank to Compensate After 12 Years Since the 'KIKO Incident'

Yoon Seok-heon, Financial Supervisory Service Chief, Firm on 'KIKO=Fraud' Judgment, Strong Commitment to 'Consumer Protection'
Woori Bank Board Approval... Shinhan Bank Likely to Approve KIKO Compensation at April 4 Board Meeting

[Asia Economy Reporter Kwon Haeyoung] Woori Bank has decided to compensate companies affected by the foreign exchange derivative product 'KIKO' following the recommendation of the Financial Supervisory Service (FSS). This comes 12 years after the KIKO incident, where numerous small and medium-sized enterprises went bankrupt due to a sharp rise in exchange rates during the 2008 global financial crisis. While this reflects the strong will of FSS Governor Yoon Seokheon to protect consumers, concerns about the uncertainty of supervisory policies have also been raised, as the issue is being revisited after the Supreme Court ruling and after the 10-year statute of limitations for civil claims for damages has passed.

According to the financial sector on the 3rd, Woori Bank held a board meeting last week and resolved to accept the KIKO compensation recommendation made by the FSS Dispute Mediation Committee in December last year.

The FSS recommended six banks?Shinhan, Woori, KDB Industrial, KEB Hana, Daegu, and Korea Citibank?to compensate four KIKO-affected companies with a total of 25.5 billion KRW (15-41% of the damages). Woori Bank is required to compensate 4.2 billion KRW to two affected companies and is the first bank to abruptly accept the compensation plan.

Hana Bank also plans to hold a board meeting this week to discuss the FSS's KIKO compensation plan. The bank's management and board have indirectly hinted at the possibility of accepting the KIKO compensation. On the board meeting held on the 8th of last month, they decided to participate in a bank consultative body for voluntary adjustment of KIKO. Participation in the voluntary adjustment for 147 KIKO-affected companies is conditional on accepting dispute mediation, so it can be interpreted that the board effectively approved the KIKO compensation in early last month.

Shinhan Bank plans to decide whether to accept the KIKO compensation at its board meeting on the 4th of this month. Although the 10-year statute of limitations for damage claims under civil law has passed and there is no legal obligation to compensate, and some outside directors oppose it due to concerns about breach of trust, it is reported that the compensation plan is likely to pass the board. Shinhan Bank's KIKO compensation amount totals 55 billion KRW, combining 15 billion KRW from this dispute mediation and 40 billion KRW from future voluntary adjustments, the largest among the banks.

Daegu Bank also plans to follow the decisions of other commercial banks, making acceptance of the compensation plan highly likely. Citibank will hold a board meeting after discussions with its U.S. headquarters to make a decision, and KDB Industrial Bank has not yet decided whether to compensate. The deadline for decisions is the 7th. If the six banks accept the dispute mediation, voluntary adjustments will be made for 147 companies. The compensation amount from voluntary adjustments is estimated to be in the 200 billion KRW range.

As banks are successively deciding to compensate for KIKO, Governor Yoon has once again enforced the consumer protection policy he has consistently emphasized since his inauguration. The KIKO compensation is a result driven solely by Governor Yoon's determination. In 2017, as chairman of the Financial Administration Innovation Committee, he requested the Financial Services Commission to re-investigate KIKO, and immediately after his appointment as FSS governor in May 2018, he ordered a re-investigation of the KIKO issue from scratch. Governor Yoon has often emphasized, "Banks sold the risky product KIKO and hedged the risk themselves but did not recommend hedging to export companies. The problem lies in the banks hedging the risk while knowing the danger. The FSS's re-investigation of KIKO is meaningful in correcting this mistake."

Some voices express concern about the uncertainty of supervisory policies, as issues that have already been settled can be revisited when the head of the supervisory authority changes. Rather than banks sympathizing with the supervisory authority's consumer protection stance, there is also a view that they are reluctantly compensating due to public criticism following large losses from derivative-linked funds (DLF) and the Lime Asset Management's fund rollover scandal.

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