NongHyup, SC to set up committee to manage ELS compensation

Traders that invested in the Hong Kong-tied derivative products march toward NongHyup Bank in central Seoul on March 15. [YONHAP]

NongHyup Bank's board of directors agreed to compensate losses caused by troubled Hong Kong-tied derivative products as advised by a guideline put forth by the country's financial regulator.

The bank said after a board meeting held on Thursday that it will establish a committee consisting of external experts to kick off the compensation procedure.

The decision follows an announcement by the Financial Supervisory Service (FSS) earlier this month that it will take action against sellers of the equity-linked securities (ELS) connected to the Hang Seng China Enterprises Index (HSCEI), which caused 1.2 trillion won ($890 million) in losses in the first two months of this year.

The financial watchdog estimates additional losses of 4.6 trillion won this year if the index remains largely unchanged from the current level.

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

The damages were correlated to the rapid decline of the HSCEI, which lost around half of its value from the 2021 peak.

NongHyup Bank sold around 2.2 trillion won worth of the products.

The bank vowed to recover the trust of customers and uphold their rights and interests through the compensation.

Standard Chartered Bank Korea's board of directors also approved a voluntary compensation plan for customers that incurred losses from the HSCEI-linked ELS products on the same day.

"An internal committee will be set up, and we will initiate a compensation process for affected customers in due course," the bank said.

Standard Chartered sold around 1.2 trillion won worth of the products.

The basic compensation ratio set by the FSS stands between 20 to 40 percent based on multiple assessment criteria, including an adequate explanation to the investors and the existence of an internal control system at the selling institutions and the characteristics of the traders, like their previous experience in ELS investment.

Woori and Hana banks announced that they will roll out compensation for losses caused by the products in line with the guideline suggested by the FSS. KB Kookmin Bank, the largest seller of the Hong Kong-tied ELS with a total value of more than 7 trillion won, and Shinhan Bank, which sold products worth 2.4 trillion won, are expected to make compensation announcements on Friday.

NongHyup Bank suspended the sales of all types of ELS since last October, a move that was followed by KB Kookmin and Hana banks in January.

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