Korea Federation of Banks chief laments incomplete sales of high-risk derivatives

Korea Federation of Banks Cho Yong-byoung speaks during a press conference held Monday at the federation's headquarters in central Seoul. [YONHAP]

The chief of the Korea Federation of Banks (KFB) expressed his “regret” over the incomplete sales of high-risk investment products by banks, as the financial watchdog put forward a compensation guideline for losses incurred from the troubled Hong Kong-tied derivatives on Monday.

“Though the financial sector has been striving to improve [its integrity] with the passing of the Financial Consumer Protection Act [in 2020], I regret and apologize that such an incident has occurred,” KFB Chairman Cho Yong-byoung said during a press conference on Monday at the federation’s headquarters in central Seoul.

“The latest announcement marks a start, and banks will respectively assess the guideline from now on, including whether they will accept the suggestion, and, if so, how they would communicate such a decision internally and externally,” Cho said, promising to bolster self-regulation within the sector.

The comment came as the Financial Supervisory Service (FSS) introduced a compensation plan for sellers of the equity-linked securities (ELS) tied to the Hang Seng China Enterprises Index (HSCEI), the value of which has collapsed to half of its 2021 peak. Total losses are estimated to reach up to 6 trillion won ($4.6 billion) this year.

However, regarding a possible ban on the sale of high-risk investment products at banks in response to the ELS incidents, Cho said that “the financial industry, including banks, needs to venture further toward the asset management business,” and “we should not go down the path of narrowing consumer choice.”

The chairman noted that “the asset management business will be vital for banks’ survival in the future,” which will determine the local financial firms’ competitiveness in the global market.

Regarding the potential liquidity risks derived from the project financing loans in the real estate sector, Cho assured that “the financial firms have sufficient loss-absorbing capabilities.”

Furthermore, Cho also addressed the negative perception of the banks’ “efforts to drive profit based on banking soundness,” expressing concerns that “such perceptions force banks to take a conservative approach when a more active step such as business expansion is needed.”

The press conference coincided with the 100th day since Cho, who previously served as the chairman of Shinhan Financial Group, took office as the chairman at KFB.

BY SHIN HA-NEE [shin.hanee@joongang.co.kr]