Banks Struggling with DLF Undergo Comprehensive Overhaul of Trust Business

Growth Momentum Halted Due to DLF Scandal
Financial Services Commission Limits 'ELT Sales Volume' to 34 Trillion
Organizational Restructuring Focused on Property Trusts and
Reestablishment of New Product Strategies

[Asia Economy Reporter Kangwook Cho] Commercial banks are reorganizing their trust business divisions and seeking new growth opportunities. In the wake of the overseas interest rate-linked derivative-linked fund (DLF) scandal, which caused massive principal losses and halted growth in money trusts, banks have restructured their organizations focusing on property trusts and established new strategies for product development.

According to the Financial Supervisory Service and financial industry sources on the 5th, as of the end of last year, the scale of trust assets entrusted to financial companies reached 968.6 trillion won, a 10.9% increase from 873.5 trillion won at the end of the previous year. It has increased by more than 300 trillion won in four years since 600 trillion won in 2015. Among these, the entrusted assets held by banks amounted to 480.4 trillion won, accounting for nearly half (49.6%) of the total.

The rapid growth of the trust market has been driven by money trusts, especially specific money trusts. At the end of last year, the balance of money trusts was 483.9 trillion won, of which specific money trusts accounted for 467.3 trillion won. Specific money trusts are products where investors entrust money to a trust company with designated investment targets, which then manages the funds to generate returns. However, the DLF scandal inevitably led to the decline of specific money trusts. Representative products of specific money trusts, such as derivative-linked trusts (DLT) and equity-linked trusts (ELT), were classified as high-risk products, resulting in restrictions on bank sales.

The Financial Services Commission recently limited the total sales of ELTs by banks to 34 trillion won, the balance as of the end of November last year. This figure is 3 to 6 trillion won less than the 37 to 40 trillion won sales volume anticipated by the FSC when it announced the measure in December last year. In particular, the FSC plans to monitor the monthly sales volume of ELTs by banks starting this month.

Commercial banks are adopting a strategy to focus on property trusts instead of money trusts. They have already carried out organizational restructuring centered on property trusts.

KB Kookmin Bank integrated its existing Investment Product Service (IPS) Headquarters and Trust Headquarters within the WM Group into an expanded Financial Investment Product Headquarters. The plan is to improve the quality of customer asset management services and strengthen practical collaboration between WM and trust divisions. Shinhan Bank separated and elevated the IPS Headquarters, previously under the WM Group, into Shinhan Bank’s Investment Product Service (IPS) Group through an early-year organizational restructuring. The IPS Group consists of the IPS Planning Department, Investment Asset Strategy Department, and Investment Product Department.

Hana Bank merged its existing Pension Business Unit and Trust Business Unit to establish the Pension Trust Group. On the 3rd, it newly launched a trust product called "100-Year Peace of Mind Happiness Trust," which comprehensively provides financial asset management functions.

Woori Bank changed the name of its existing WM Group to Asset Management Group. The Trust Pension Group was downgraded to the Trust Pension Unit. NH Nonghyup Bank split its WM Pension Department into the WM Business Department and Retirement Pension Department and established a Trust Investor Protection Enhancement Task Force within the Trust Department.

A financial industry official said, "Due to the impact of the DLF scandal, the growth stagnation of the specific money trust business, which banks have focused on, has become inevitable," adding, "Also, since financial authorities plan to reform the trust system in the second half of this year, banks are expected to concentrate on the property trust sector, which is less regulated and has lower market volatility."

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