KB and Shinhan to Resolve 'ELS Compensation' at This Week's Board Meeting... Bank Sector Compensation Expected to Exceed 2 Trillion Won

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Q1 Provision Liabilities Expected to Exceed 2 Trillion Considering Voluntary Compensation... Cautious on Total Compensation Ratio
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Major commercial banks, which account for more than 80% of the outstanding balance of Hong Kong H-Index (Hang Seng China Enterprises Index·HSCEI) equity-linked securities (ELS), are holding consecutive extraordinary board meetings through this week to decide on voluntary compensation policies for investment losses. Following Woori Bank's initial indication of accepting the Financial Supervisory Service's dispute resolution standards, Hana Bank, NH Nonghyup Bank, and SC First Bank have finalized their extraordinary board meeting schedules, while Shinhan Bank and KB Kookmin Bank plan to announce their voluntary compensation policies after board approval soon.

According to financial authorities on the 25th, KB Kookmin Bank and Shinhan Bank, which had not yet finalized schedules for extraordinary board meetings to discuss voluntary compensation plans among major commercial banks, will hold such meetings this week to finalize their compensation plans. They will report the estimated loss compensation amounts based on the dispute resolution standards proposed by the Financial Supervisory Service on the 11th to their boards and approve an agenda to reflect the compensation payments in the first quarter's financial results.

KB Kookmin Bank, which sold HK H-Index ELS worth 7.8 trillion won, plans to convene an extraordinary board meeting later this week. The bank has formed an internal task force (TF) to conduct a full investigation of HK H-Index ELS accounts sold from January to July 2021 following the announcement of the Financial Supervisory Service's dispute resolution standards. The TF is expected to soon present the full investigation results to the board, which will then decide on the direction of voluntary compensation based on these findings.

Shinhan Bank also aims to hold an extraordinary board meeting this week. Having sold HK H-Index ELS worth 2.4 trillion won, Shinhan Bank activated a related TF from June last year and is reported to have completed scenario reviews regarding expected compensation amounts and compensation ratios in case of voluntary compensation. Since Shinhan Bank communicated with its directors through a preliminary meeting on the 21st, it is expected to hold the extraordinary board meeting immediately after the shareholders' meeting on the 26th.

The other commercial banks set their extraordinary board meeting dates around Woori Bank's voluntary compensation decision. Hana Bank will discuss the voluntary compensation plan at its board meeting on the 27th. NH Nonghyup Bank and SC First Bank are also expected to approve compensation plans at their board meetings on the 28th. Woori Bank plans to individually contact investors whose ELS mature from April starting this week and may begin compensation payments as early as April.

The reason major commercial banks are consecutively holding extraordinary board meetings at the end of March to decide on voluntary compensation plans is interpreted as an effort to align as closely as possible with the Financial Supervisory Service's dispute resolution committee procedures starting in early April. It is also seen as a preemptive measure to simplify accounting procedures related to loss compensation reserves. KB Kookmin Bank, which plans to hold an extraordinary board meeting later this week, is reported to reflect about 1 trillion won in reserves in its first-quarter results.

A financial industry official explained, "Since sanction procedures for each seller will begin after the Financial Supervisory Service's dispute resolution committee, it seems that sellers believe it is advantageous to first announce their positions considering various variables to resolve the Hong Kong ELS issue."

Meanwhile, the loss amount related to compensation that major commercial banks will reflect in their first-quarter results is expected to reach at least 2 trillion won. The most problematic products sold from January to July 2021 total 10.05 trillion won. Assuming a loss rate of 50% and an average compensation rate of 40%, the reserves that six banks need to accumulate are estimated at about 2 trillion won. However, all commercial banks are cautious about mentioning the total compensation amount and average compensation ratio, as the compensation scale can fluctuate depending on individual negotiation outcomes and future trends of the Hong Kong H-Index.

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