"Bank Sector ELS Compensation Expected to Reach Up to 2.2 Trillion Won... Minimal Impact on Stock Prices"

FSS Announces Compensation Plan for Hong Kong H-Index ELS
Banking Sector Compensation Amount Estimated at 1.7 to 2.2 Trillion KRW
Limited Negative Impact on Banking Industry Stock Prices

Financial Supervisory Service Governor Lee Bok-hyun is announcing the dispute mediation guidelines related to the large-scale losses of the Hong Kong H Index-linked ELS at the Financial Supervisory Service in Yeouido, Seoul, on the 11th. Photo by Kang Jin-hyung aymsdream@

Ebest Investment & Securities expects that the compensation plan for the Hong Kong H-Index equity-linked securities (ELS) announced yesterday by the Financial Supervisory Service will not have a significant negative impact on bank sector stock prices.

Jeon Bae-seung, a researcher at Ebest Investment & Securities, stated, "Assuming a neutral investor profile and a compensation ratio of around 30-40%, the total compensation amount for the banking sector is estimated to be between 1.7 trillion and 2.2 trillion KRW."

Compensation amounts are expected to vary significantly by bank depending on the remaining sales balance. Researcher Jeon analyzed, "Assuming an average loss rate of 40% and a compensation ratio of 30%, the compensation amount is expected to range from 200 billion to 800 billion KRW, which corresponds to about 4% to 13% of the pre-tax profits of the holding companies."

Yesterday, the Financial Supervisory Service announced the inspection results and compensation ratios for the Hong Kong H-Index ELS. The key factor, the compensation ratio, was determined by combining the basic compensation ratio (20-40%), weighted factors for sales companies (3-10%), investor-specific additions and deductions (-45 to +45%), and other adjustments (10%). The basic compensation ratio was set lower than the 55% applied to DLFs.

The outstanding sales balance of Hong Kong H-Index ELS in the banking sector reached 15.4 trillion KRW as of the end of last year. The amount maturing this year is 13.2 trillion KRW. Assuming a loss rate of approximately 40% and that the H-Index level remains similar to that at the end of February, the expected loss amount for the banking sector this year is around 5.5 trillion KRW.

Researcher Jeon commented, "Since this issue has been surfaced for a considerable period, the basic compensation ratio is within the expected range, and the recent downward trend of the H-Index appears to have stabilized, the impact on sector stock prices is expected to be limited." However, he pointed out, "Nevertheless, the sales of ELS (ELT) by banks are likely to shrink going forward, and in a scenario where interest rate cuts are expected in the second half of the year along with a slowdown in interest income, securing fee income is also expected to be challenging."

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