5 Major Banks Sell 70 Trillion Won in Private Equity Funds, Earn 300 Billion Won Profit

Sales Commission Income Increased Annually Over 5 Years
Struggles in Q1 This Year Due to Redemption Suspension Crisis

[Asia Economy Reporter Kangwook Cho] South Korea's five major commercial banks have sold over 70 trillion won worth of private equity funds (PEFs) in the past five years, earning more than 300 billion won in fees alone. Considering the sales commissions received throughout the fund subscription period, the income related to PEFs is estimated to be even higher.

According to data obtained from the Financial Supervisory Service by Park Yong-jin, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Banks sold PEFs worth 70.6735 trillion won from 2015 to 2019. Annual sales increased sharply from 5.7586 trillion won in 2015 to 7.965 trillion won in 2016, 16.7248 trillion won in 2017, and 20.6559 trillion won in 2018. However, amid issues of poor management and incomplete sales of PEFs, sales dropped by about 1 trillion won to 19.5692 trillion won last year.

On the other hand, income from PEF sales commissions increased every year. It recorded 35.6 billion won in 2015, 48.9 billion won in 2016, 67.4 billion won in 2017, 83.6 billion won in 2018, and 96 billion won in 2019. Over the five years, Hana Bank earned the most in sales commissions (96.6 billion won), followed by Woori Bank (68.2 billion won), Shinhan Bank (64 billion won), Nonghyup Bank (64.3 billion won), and Kookmin Bank (38.4 billion won).

The rapid growth in banks' PEF sales volume is interpreted as a result of government policies aimed at revitalizing PEFs through deregulation combined with banks' strategies to increase non-interest income. In 2015, the government significantly eased the requirements for establishing PEFs. The capital requirement was reduced to one-third, and the system changed from approval-based to registration-based. Additionally, operations could start with just three employees having more than three years of experience in the financial sector. As a result, the number of professional private equity managers increased more than tenfold in five years. The minimum investment amount for individual investors was also lowered from 500 million won to 100 million won. With such a significant lowering of entry barriers, the PEF market size rapidly expanded from around 170 trillion won to 400 trillion won after 2015.

However, recently, issues such as incomplete sales of overseas interest rate-linked derivative-linked funds (DLFs), Lime Asset Management, and the large-scale suspension of redemptions by Optimus Asset Management have occurred consecutively, raising concerns about the side effects of banks selling PEFs and causing investor sentiment to cool sharply. In fact, in the first quarter of this year, the five major banks' PEF sales amounted to 2.1758 trillion won, with sales commissions shrinking to 1.8 billion won.

Assemblyman Park Yong-jin emphasized, "It is necessary to strengthen overall management and supervision not only of sales companies that take high fees but also of asset management companies and administrative management firms to ensure they conduct business responsibly."

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