Banks squeezing dry towels... Selling private equity funds again

DLF and Lime Scandals Halted Sales
With Main Income Source Household Loans Blocked, Sales Resume to Secure Profitability
Woori Bank Plans to Resume Sales Next Year...Focus on Stable Bond-Type Products

[Asia Economy Reporter Kangwook Cho] Commercial banks, which suffered from various private equity fund scandals such as Derivative Linked Funds (DLF), Lime, and Optimus, are resuming the sale of private equity funds that had been suspended. This is because household loans, which were a major source of income amid the prolonged COVID-19 pandemic, have been blocked by government regulations, putting banks in an urgent situation to secure profitability. However, due to the loss of trust caused by incomplete sales of funds, the balance of private equity fund sales in the banking sector has shrunk by nearly 5 trillion won this year alone, leading to criticism that this is merely squeezing a dry towel.

According to the financial sector on the 16th, Woori Bank has set a policy to resume private equity fund sales from next year and is currently coordinating the timing of sales. The main products to be sold are expected to be bond-type funds with high stability.

A Woori Bank official said, "We are considering resuming private equity fund sales," adding, "There is customer demand because the returns are higher than public funds and they can move quickly, and due to concerns about profitability, we cannot avoid selling them."

Earlier, Hana Bank resumed private equity fund sales on the 19th of last month. Due to the ongoing private equity fund scandals, Hana Bank focused on internal reorganization and establishing sales standards rather than launching new products. Hana Bank explained that they only handle products that verify the 'existence of assets' and have put in place measures to prevent incomplete sales. To prevent incomplete sales, only employees who have completed 'enhanced product training' are allowed to sell, and every three months, they check whether the actual operation is proceeding as described in the product proposal and explain and deliver operation reports to customers.

Hana Bank and Woori Bank were both sanctioned by financial authorities with a six-month ban on new private equity fund sales until September 4 due to the large-scale principal loss caused by the DLF incident in March. Since then, both banks have focused on organizational restructuring and carefully selecting products for complete sales. The product Hana Bank introduced after resuming sales is an investment product in the 'Cheongna Hana Global Talent Development Center Senior Loan Bond' located in Cheongna, Incheon, which belongs to Hana Financial Group. Hana Alternative Investment Asset Management, an affiliate of Hana Financial Group, directly verified the existence of the assets and created the product, which was then further verified for stability by Hana Bank's IPS (Investment Product Service) department before deciding to launch it. Woori Bank also changed the name of its existing Wealth Management (WM) group to Asset Management Group in February and established a Customer Care Center team focusing on risk management.

As repeated insolvency incidents increased investor distrust, the amount of private equity fund sales in the banking sector sharply declined. According to the Korea Financial Investment Association, as of the end of October this year, the balance of private equity fund sales by 16 domestic commercial banks was 20.5598 trillion won, shrinking by 8.4453 trillion won compared to July last year, when sales were at their highest. The institutional sales proportion, which was over 8%, also halved to the 4% range.

Despite the fact that private equity fund products are being shunned and that financial authorities have tightened regulations to the extent that even the board of directors, including the CEO, can be held accountable when problems arise, banks are resuming private equity fund sales because concerns over deteriorating profitability are growing. According to the Financial Supervisory Service, the net interest margin (NIM), a profitability indicator for banks' interest income, fell by 0.15 percentage points from last year to 1.4% in the third quarter, setting a new all-time low. Meanwhile, financial authorities have strongly urged banks to manage the total volume of household loans, which have rapidly increased this year, leading to stringent measures such as blocking loan windows, making profitability deterioration inevitable next year.

A financial sector official said, "Due to various regulations that shift all responsibility to banks, warning signs of future profitability deterioration have been lit," adding, "Even though the severity of sanctions has been strengthened to include CEO responsibility, banks must sell private equity funds because they are in a desperate situation where they have no choice but to find sources of income in non-interest sectors."

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