Shinhan Bank to provide compensation for KIKO contract losses

Shinhan Bank said Tuesday it has decided to compensate businesses for losses incurred due to currency-linked derivatives known as knock-in, knock-out (KIKO) contracts.

The bank said in a statement that it has decided to do so to carry out its social responsibility as a financial company and in consideration of the difficult market environment for small businesses, but made it clear that it “does not have legal responsibility regarding the KIKO dispute.”

The so-called KIKO contracts were designed to allow buyers to hedge against volatile currency swings. While the product allows buyers to sell foreign currency at a fixed rate when the exchange rate moves within a certain range, if the exchange rate moves beyond the preset range, buyers can see great losses. Local businesses saw great losses in the financial crisis in 2008 and then accused banks of hiding the crucial risks of the currency-linked derivatives.

In December, the Financial Supervisory Service advised six local banks to pay up to 41 percent of losses incurred by local businesses from KIKO contracts inked in 2008 or prior. The banks initially refused, with the exception of Woori Bank.

Shinhan Bank did not reveal how much and when it will provide compensation, but said it will create compensation guidelines after consulting with legal experts.

On Monday, Citibank Korea also said it will offer compensation.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]