DLF and Lime... Banks Significantly Reduce Private Fund Sales Accounts

Last December, 37,409 Units Recorded... All-Time High, Shrunk by 37.1% Compared to Last June
Outstanding Sales Also Decreased by 12.5%... Larger Decline in Woori and Hana Due to DLF Incident

[Asia Economy Reporter Kangwook Cho] After the large-scale principal losses from overseas interest rate-linked derivative-linked funds (DLF) and the redemption suspension incident of Lime Asset Management last year, the number of investors in private equity fund products sold by banks has decreased by nearly 40%. The reduced amount exceeds 3 trillion won. This is interpreted as a result of a series of issues causing a decline in consumer trust in the banking sector due to not only private equity funds but also incomplete sales.

According to the Korea Financial Investment Association on the 4th, as of the end of December last year, the number of private equity fund sales accounts at banks was 37,409. This is a 37.1% (22,106 accounts) decrease compared to the record high at the end of June last year. The number of private equity fund sales accounts at banks has decreased for six consecutive months since the end of June last year. As the number of sales accounts decreased, the sales balance also shrank by 12.5% (3.6281 trillion won) from 28.9634 trillion won at the end of June last year to 25.3353 trillion won at the end of December last year.

Among commercial banks, Woori Bank and Hana Bank, which received heavy sanctions for incomplete sales of DLF, saw significant decreases. Woori Bank's private equity fund sales accounts dropped 54.9% from 15,727 at the end of June last year to 7,094 at the end of December, and the sales balance plunged 35.8% (2.6736 trillion won) from 7.4945 trillion won to 4.797 trillion won. During the same period, Hana Bank's sales accounts decreased by 41.5% from 15,966 to 9,334, and the sales balance fell by 20.4% (817 billion won) from 3.9975 trillion won to 3.1805 trillion won. In particular, the decrease among individual customers was significant. At Woori Bank, 7,556 accounts, accounting for 87.5% of the 8,633 decreased accounts, were individual customers, and at Hana Bank, 6,484 accounts, or 97.8% of the 6,632 decreased accounts, were individual customers. Shinhan Bank's private equity fund sales accounts also decreased by 13.9% (1,083 accounts) from 7,792 at the end of June last year to 6,709 at the end of December. Individual customer accounts accounted for 886, or 81.8%. The balance decreased by 8.2% (403.8 billion won) from 4.9405 trillion won to 4.5367 trillion won. Among the four major commercial banks, only Kookmin Bank saw an increase in private equity fund sales accounts from 6,127 to 6,455, a 5.4% rise during the same period. The sales balance also increased by 14.7% (814.4 billion won) from 5.5413 trillion won to 6.3557 trillion won.

The decline in private equity fund sales by banks appears to be due to the loss of trust caused by banks, which have traditionally handled stable financial products such as savings and deposits, indiscriminately selling high-risk private equity funds with principal losses to individual customers. The Financial Supervisory Service pointed out excessive sales activities and poor internal controls by banks and decided that up to 80% of investment losses should be compensated. The CEOs of Woori and Hana Banks were also subject to heavy disciplinary actions, including a reprimand.

On the other hand, private equity fund sales by securities companies and insurance companies have steadily increased. During the same period, securities companies' private equity fund sales accounts increased by 5.0% (4,048 accounts) from 80,545 to 84,593, and insurance companies' accounts rose by 15.9% (173 accounts) from 1,086 to 1,259. The sales balance also grew by 9.4% (28.9823 trillion won) from 307.742 trillion won to 336.7243 trillion won for securities companies, and by 16.6% (5.9415 trillion won) from 35.8399 trillion won to 41.7814 trillion won for insurance companies.

The decline in private equity fund sales by banks is expected to continue. In November last year, financial authorities decided to restrict the sale of high-risk private equity fund products with embedded derivatives that are difficult for investors to understand and where principal losses can exceed 20% at banks.

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