Shinhan Bank, Accept or Reject 'KIKO Compensation' (Comprehensive)

Attention on Board Decision on the Afternoon of the 6th... Some Banks Only Watch Shinhan
Citi Bank Rejects Recommendation for Large-Scale Debt Relief for Ilseong Hysco Compensation... Remaining 39 Companies Review Compensation

[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 the foreign exchange derivative currency option contract 'KIKO'. This follows KDB Industrial Bank and Korea Citibank rejecting the Financial Supervisory Service's compensation recommendation the previous day. In particular, with the state-run Industrial Bank not accepting the compensation recommendation, there are expectations that Shinhan Bank's burden may be eased, and some speculate that it might accept the recommendation like Woori Bank.

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

The Financial Supervisory Service only considered 'overhedge' contracts, where banks sold KIKO exceeding the company's annual export amount, as subjects for adjustment. In the case of Ilseong Hysco, which is subject to dispute mediation this time, the KIKO contracts sold by Shinhan Bank amounted to 410 million USD, including the contract from January 2008, which was 397% compared to the previous year's export amount.

While Shinhan Bank is about to decide whether to accept the KIKO compensation plan, Industrial Bank and Citibank held board meetings and decided not to accept the KIKO compensation plan recommended by the Financial Supervisory Service's Dispute Mediation Committee for Ilseong Hysco.

However, Citibank left open the possibility of compensation for 39 companies subject to voluntary adjustment proposed by the Financial Supervisory Service, 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 Financial Supervisory Service among those who have not received court rulings, we are reviewing the facts and considering reasonable compensation if it is judged appropriate in light of court rulings."

Industrial Bank decided to reject the recommendation, viewing the Dispute Mediation Committee's judgment that it violated the duty to explain as having legal grounds to dispute the facts. It has not yet disclosed plans for other affected companies that did not apply for dispute mediation with the Financial Supervisory Service.

The impact of Industrial Bank and Citibank's decisions is a variable. Currently, Shinhan Bank's outside directors strongly oppose compensation for KIKO, citing the expiration of the statute of limitations and the risk of breach of trust, but some are reportedly in favor. The most important factor is the management's will. Woori Bank actively persuaded KIKO compensation directly by management despite opposition from outside directors.

Meanwhile, Hana Bank and Daegu Bank requested the Financial Supervisory Service to extend the deadline for the third decision. Daegu Bank is facing difficulties in convening a board meeting due to the spread of the novel coronavirus (COVID-19). Hana Bank stated that more time is needed for fact verification and legal review. The Financial Supervisory Service accepted the extension requests from both banks.

Meanwhile, overseas, there have been several cases where banks actively compensated for incomplete sales of KIKO-like products. The UK Financial Conduct Authority (FCA) ordered compensation of 2.1 billion pounds (3.3 trillion KRW) related to 13,936 interest rate hedge products (45% of the total) from 2013 to 2016, leading to bank compensation. Japanese banks, through the Japan Bankers Association (JBA), compensated at a level of 20-30% of damages related to 1,169 foreign exchange derivative products (76.6% of the total) from 2011 to 2017.

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