Growth Halted Due to DLF Impact... Banking Sector Undertakes Comprehensive Overhaul of Trust Business (Comprehensive)

Financial Services Commission Limits 'ELT Sales Total Volume' to 34 Trillion
Organizational Restructuring Focused on Property Trusts and Reestablishment of New Product Strategy

[Asia Economy Reporter Kangwook Cho] Commercial banks are reorganizing their trust business divisions and seeking new growth opportunities. In the aftermath of the overseas interest rate-linked derivative-linked fund (DLF) incident, 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 new products.

According to the Financial Supervisory Service on the 5th, as of the end of last year, the scale of trust assets entrusted to financial companies was 968.6 trillion KRW, an increase of 10.9% from the end of the previous year (873.5 trillion KRW). It grew by more than 300 trillion KRW in four years from 600 trillion KRW in 2015. It is expected that the trust assets will surpass 1,000 trillion KRW by the second quarter of this year. The trust assets held by banks amount to 480.4 trillion KRW, accounting for nearly half (49.6%) of the total.

Money trusts, particularly specific money trusts, have driven the sharp rise in the trust market. At the end of last year, the balance of money trusts (483.9 trillion KRW) included specific money trusts amounting to 467.3 trillion KRW. 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 incident inevitably led to the decline of specific money trusts. Derivative-linked trusts (DLT) and equity-linked trusts (ELT), representative products of specific money trusts, 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 KRW, the balance as of the end of November last year. This figure is 3 to 6 trillion KRW less than the 37 to 40 trillion KRW sales volume anticipated by the FSC when it announced the measure in December last year. Although this is a step back from the initial plan to completely ban banks from selling trusts, the strengthened regulations inevitably shrink bank profits. In particular, the FSC plans to monitor monthly ELT sales volumes by banks starting this month. Trusts have attracted attention as comprehensive asset management services expected to grow with increasing inheritance and gifts in an aging society, but there have been criticisms that they have been distorted into financial companies' product sales channels, contrary to their original purpose.

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 independent Investment Product Service (IPS) Group through an organizational restructuring at the beginning of the year. This aims to enhance the expertise of investment products at all branches and secure independence from product promotion. The IPS Group consists of the IPS Planning Department, Investment Asset Strategy Department, and Investment Product Department.

Hana Bank merged its existing Pension Business Division and Trust Business Division to establish the Pension Trust Group. The Trust Business Division plans to develop and supply ELT products and collaborate with the Pension Business Division to develop various products such as structured funds for large and medium-sized enterprises and corporate bonds. On the 3rd, it newly launched the trust new product "100-Year Secure Happiness Trust," which comprehensively provides financial asset management functions.

Woori Bank renamed its existing WM Group to Asset Management Group. Initially, Woori Bank planned to launch the Asset Management Group by integrating the WM Group and Trust Pension Group. However, the Trust Pension Group was downgraded to the Trust Pension Unit and is expected to maintain a separate system from the Asset Management Group. NH Nonghyup Bank split the WM Pension Department into the WM Business Department and Retirement Pension Department and established the Trust Investor Protection Enhancement Task Force within the Trust Department.

A financial industry insider said, "Due to the impact of the DLF incident, 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 has fewer regulations and less market volatility."

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