Woori Bank will follow FSS plan to compensate losses from Hong Kong-tied securities

Woori Bank headquarters building in central Seoul [WOORI BANK]

Woori Bank's board of directors agreed to roll out compensation for losses brought on by the sales of Hong Kong-tied derivative products in line with the suggested guideline put forth by the Financial Supervisory Service (FSS) at a meeting Friday.

The decision was made on Friday by its board of directors during a board meeting. The negotiation process will begin as early as April.

The latest decision makes Woori Bank the first to get on board with the FSS’s voluntary plan for the compensation investor losses incurred by the high-risk equity-linked securities (ELS) linked to the movement of the Hang Seng China Enterprises Index, the value of which has collapsed to half of its 2021 peak.

Woori Bank’s sale volume of the derivatives in question amounted to 41.3 billion won ($31.2 million), a comparatively smaller sum than those shouldered by sellers such as KB Kookmin Bank, which sold 7.8 trillion won, or Shinhan Bank's 2.4 trillion won.

“The decision was made to address the uncertainties ahead of the ELS products’ maturity and protect investors,” Woori Bank said in a statement released Friday.

The estimated average compensation ratio has not been announced, as the bank will need to assess each individual case. That process will begin with the securities that are set to mature next month.

On March 11, the FSS laid out a compensation plan for sellers under which the actual amount of compensation payment would vary based on several criteria, such as the characteristics of the traders — including their previous experience with ELS investment — and whether investors were given adequate explanation.

As the FSS estimated that the compensation ratio would fall between 20 and 60 percent of investor losses in general, a tentative average is likely to be around 40 percent.

Of the securities sold by Woori Bank, those set to mature in April are expected to see an average loss rate of about 45 percent. Assuming a compensation ratio of 40 percent, the total compensation is estimated at less than 10 billion won.

Hana Bank, following suit, will hold a board meeting next Wednesday to discuss the compensation plan. NongHyup Bank and Standard Chartered Bank Korea are set to meet Thursday.

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