ELS Self-Compensation, Woori Bank's 'First Discussion'... What About KB, Shinhan, and Hana Banks?

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After the Financial Supervisory Service (FSS) presented the dispute mediation guidelines for Hong Kong H Index (Hang Seng China Enterprises Index·HSCEI) equity-linked securities (ELS) and recommended voluntary compensation, Woori Bank is the first to submit a voluntary compensation plan to its board of directors. Woori Bank, which bears a relatively smaller burden related to Hong Kong ELS compensation, is taking the board resolution process first. As a result, attention is focused on the moves of KB Kookmin Bank, Shinhan Bank, Hana Bank, and NH Nonghyup Bank.

According to the financial sector on the 20th, Woori Bank will report the compensation scale based on the dispute mediation plan presented by the FSS on the 11th and discuss voluntary compensation measures at the board meeting scheduled for the 22nd. If a resolution on the voluntary compensation agenda is made at this board meeting, it is expected to be the first among major commercial banks to announce a voluntary compensation plan.

The expected compensation scale according to Woori Bank’s dispute mediation guidelines is reported to be less than 10 billion KRW. Woori Bank’s Hong Kong ELS sales amount to 41.3 billion KRW, with a loss rate of about -45% for the first maturity tranche. Based on the loss amount of the first maturity tranche, a simple calculation suggests that the voluntary compensation rate will be around 50%.

Woori Bank is the only major commercial bank that continues to sell ELS even after the Hong Kong ELS incident. Other commercial banks collectively suspended ELS sales at the end of January when losses began to materialize. Woori Bank stated that it stopped selling Hong Kong ELS from December 2022 and had already established a system by selling products only through private banking (PB) channels before the enforcement of the Financial Consumer Protection Act, expressing confidence.

Hana Bank and Shinhan Bank, which hold board meetings before Woori Bank, are unlikely to discuss voluntary compensation plans immediately at their meetings on the 20th and 21st. This is because their sales scale reaches 2 trillion KRW, making it difficult to complete internal reviews in a short time. Moreover, given the large sales volume, if the FSS standards are applied, the voluntary compensation amount could reach several hundred billion KRW, making it challenging to hastily submit the agenda to the board. Only NH Nonghyup Bank, which plans to hold a board meeting on the 28th, is reportedly considering submitting the agenda.

KB Kookmin Bank, which sold 8 trillion KRW worth of Hong Kong ELS, is uncertain whether it can complete internal reviews by the end of March to early April as suggested by the FSS. KB Kookmin Bank’s board meeting is scheduled for the 21st. A banking industry official said, "Except for Woori Bank, other commercial banks are in a situation where it is difficult to complete even internal reviews, let alone accept the dispute mediation guidelines, until the dispute mediation committee process conducted by the FSS begins."

In particular, it is judged that uncertainties regarding the possibility of breach of trust due to acceptance of the dispute mediation guidelines and the FSS’s disciplinary measures such as fines, as well as the policy of leniency, have not been sufficiently resolved. There are many variables in deciding to accept the voluntary compensation plan under pressure from the FSS and then establishing a detailed compensation plan.

On the 19th, Lee Bok-hyun, Governor of the FSS, told reporters after a regular meeting and a private dinner held at the Bankers Association building, "Regarding the ELS compensation issue, since there are board meetings or general shareholder meetings this week and next week, communication will naturally take place through the proper procedures."

Accordingly, major commercial banks are first revising the performance evaluation indicators (KPI) pointed out by the FSS as the cause of incomplete sales in the banking sector. Hana Bank decided to add an item for "risk management of concentrated sales of specific high-risk products by sales channel" starting from the first half of this year.

KB Kookmin Bank created a deduction standard to ensure that the proportion of structured products with principal loss does not exceed a certain level in new fund and trust sales amounts. Shinhan Bank also decided not to recognize sales of non-interest products to super-elderly customers as performance.

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