Citibank Partially Accepts 'KIKO Compensation'... Will Shinhan Bank Make a Decision?

Citibank Rejects Recommendation to Compensate Ilseong Hysco in Large-Scale Debt Relief... Remaining 39 Companies Reviewing Compensation
Shinhan Bank's Board Decision on the 6th in Focus... Some Banks Only Watching Shinhan

[Asia Economy Reporters Haeyoung Kwon, Minyoung Kim] The financial sector is closely watching the decision of Shinhan Bank, which has the largest compensation scale among banks, regarding companies that suffered losses from investing in foreign exchange derivatives currency option contracts (KIKO). This follows KDB Industrial Bank and Korea Citibank rejecting the Financial Supervisory Service's (FSS) compensation recommendation the previous day. In particular, with the state-run Industrial Bank not accepting the compensation recommendation, there is speculation that Shinhan Bank’s burden may be eased and that it might accept the recommendation like Woori Bank.

According to the financial sector on the 6th, Shinhan Bank will hold a board meeting in the afternoon, the expiration date of the FSS Dispute Mediation Committee’s KIKO dispute compensation recommendation, to discuss whether to compensate. Shinhan Bank has the largest compensation amount among domestic banks. The FSS estimates Shinhan Bank’s KIKO compensation at 15 billion KRW for dispute mediation and around 40 billion KRW for voluntary adjustment.

The FSS only considered ‘over-hedge’ contracts, where banks sold KIKO exceeding the company’s annual export volume, as subjects for adjustment. In the case of Ilseong Hysco, which is subject to dispute mediation this time, the KIKO sold by Shinhan Bank amounted to 410 million USD, including contracts from January 2008, which is 397% of the previous year’s export volume.

Outside directors of Shinhan Bank strongly oppose compensation, citing that the statute of limitations for KIKO compensation has passed and there is a risk of breach of trust, but some supportive opinions have also been reported. Especially, the impact of the compensation decisions by Industrial Bank and Citibank is a key variable.

Industrial Bank and Citibank held board meetings the previous day and decided not to accept the FSS Dispute Mediation Committee’s recommended KIKO compensation plan for Ilseong Hysco. However, Citibank left open the possibility of compensation for 39 companies subject to voluntary adjustment proposed by the FSS, stating, “If compensation is deemed appropriate, we are considering reasonable compensation.” The compensation scale exceeds 40 billion KRW. A Citibank official explained, “For some companies proposed by the FSS that have not received court rulings, we are reviewing the facts and considering reasonable compensation if deemed appropriate in light of court rulings.”

Industrial Bank also decided to reject the recommendation, viewing the Dispute Mediation Committee’s judgment that it violated the duty to explain as legally disputable in terms of factual matters. It has not yet disclosed plans for other affected companies that did not apply for dispute mediation with the FSS.

Meanwhile, Hana Bank and Daegu Bank have requested a third extension of the decision deadline from the FSS. Daegu Bank is facing difficulties convening a board meeting due to the spread of the novel coronavirus (COVID-19).

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