'Profitability Emergency' Banks Resell Private Equity Funds "Squeezing a Dry Towel" (Comprehensive)

DLF and Lime Scandals Halted Sales
Main Income Source Blocked by Household Loans, Sales Resumed to Secure Profitability
Woori Bank Plans to Resume Sales Next Year...Focus on Stable Bond-Type Funds
Possibility of Another Suspension Next Year Due to Bank Sanctions on Lime Fund Sales

[Asia Economy Reporter Jo Gang-wook] 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 due to the prolonged COVID-19 pandemic and government regulations blocking household loans, which were a major source of income, 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.

Hana Bank Resumes Private Equity Fund Sales in November... Woori Bank Also Adjusting Sales Timing

According to the financial sector on the 16th, Woori Bank plans to resume private equity fund sales from next year and is currently adjusting the sales timing. 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 private equity funds have higher returns and can move quickly compared to public funds, 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 it only handles products that verify the 'existence of assets' and has 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 banned from new private equity fund sales for six months from March 5 to September 4 by financial authorities due to the large-scale principal loss caused by the DLF incident. 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, part of the 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 reviewed once more by Hana Bank's IPS Department (Investment Product Service) for stability before deciding to launch. 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.

Private Equity Fund Sales Plummet Due to Poor Fund Incidents... Down 8.4 Trillion Won Since July Last Year

As poor fund incidents continued, investor distrust grew, causing private equity fund sales in the banking sector to plummet. 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 the peak sales in July last year. The institutional sales ratio, which was over 8%, has also halved to the 4% range.

Despite stricter financial regulations, including holding the board of directors and CEOs accountable when problems arise with private equity fund products, banks are resuming private equity fund sales due to growing concerns over deteriorating profitability. 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, marking a new all-time low. Meanwhile, financial authorities have strongly urged banks to manage the total volume of rapidly increasing household loans this year, implementing stringent measures to block 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 revenue sources in non-interest sectors."

Profitability in Crisis, Another Risk of Deterioration Next Year Due to Lime Sanctions

However, there is also a possibility that private equity fund sales will be suspended again. This is because financial authorities plan to impose sanctions on banks that sold Lime Asset Management's private equity funds, which caused a large-scale redemption suspension incident next year.

Yoon Seok-heon, head of the Financial Supervisory Service, recently said, "I think bank sanctions will take a little more time," adding, "It will probably be around February."

A total of eight banks sold Lime funds. By bank, Woori Bank sold the largest amount at 357.7 billion won, followed by Shinhan Bank with 276.9 billion won, and Hana Bank with 87.1 billion won. Busan Bank sold 52.7 billion won, Gyeongnam Bank 27.6 billion won, NH Nonghyup Bank 8.9 billion won, IBK Industrial Bank 7.2 billion won, and KDB Industrial Bank 3.7 billion won.

Earlier, financial authorities imposed heavy sanctions on the CEOs of four out of six securities firms that sold Lime funds. The financial sector is paying close attention to the possibility that financial authorities will also impose heavy sanctions on the CEOs of banks that sold Lime funds.

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