KB, Hana banks suspend ELS sales amid losses linked to Chinese stocks

People shave their heads in front of the Financial Supervisory Service in Yeouido, western Seoul to urge compensation for damages related to ELS losses on Jan. 19. [YONHAP]

KB Kookmin and Hana banks suspended the sales of equity-linked securities (ELS), a controversial financial derivative product, while Woori Bank is reviewing the decision amid mounting losses from the ELS linked to Chinese stocks.

KB suspended the sales of all types of ELS from Tuesday, and Hana from Monday, the banks said.

ELS returns are linked to the upward and downward movement of the underlying stocks.

"We've decided to temporarily halt the sales of ELS amid volatility in the global financial market," said KB in a statement. "We will decide the resumption of the sales after comprehensive consideration on future market stability and customer choice."

Hana similarly said that that the decision was made "in consideration of the current financial market and for consumer protection."

NongHyup bank suspended the sales of the products from October.

The banks halted sales amid growing losses by those who invested in the ELS tied to Hong Kong’s Hang Seng China Enterprises Index (HSCEI), which has plunged to less than half of its 2021 peak following U.S.-China tensions and an economic slowdown in China.

Confirmed losses for the troubled products have totaled more than 100 billion won ($75 million) so far this year. Investors who allege to be the victims argue they were not adequately informed of the potential losses associated with the fluctuations in the HSCEI. They are preparing to file a petition to lawmakers.

The balance for sales of the ELS stood at 19.3 trillion won as of November with 15.9 trillion won from banks and 3.4 trillion won from brokerage firms. Combined, there are more than 400,000 accounts, with 22 percent held by investors aged 65 and above.

The Financial Supervisory Service expanded a probe into ELS sellers in January as more than 10 trillion won worth of products are set to mature in the first half of the year. It plans to conclude measures for the losses, including the compensation plans for the alleged victims, by March at the latest.

Woori Bank is also reviewing the halt of its sales. Shinhan Bank said it has not yet initiated the review, but has narrowed the types of products it sells to less risky products.

Banks are particularly concerned about Japan’s Nikkei index, as it recently hit a 33-year high on the surge of tech stocks.

“We’ve lowered the barrier in particular concerns for the peak of the Nikkei index and have strengthened monitoring over the index,” said Jang Man-sik, a PR spokesperson for Woori Bank.

BY JIN MIN-JI [jin.minji@joongang.co.kr]