Hana Bank to roll out compensation for Hong Kong-linked ELS losses

Hana Bank's board of directors agreed to initiate compensation for losses incurred through its sales of derivative products linked to a Hong Kong index.

Hana Financial Group headquarters in central Seoul [NEWS1]

Hana 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).

The decision was made on Wednesday during a board meeting and follows the financial watchdog’s announcement earlier in March about taking action against sellers of the equity-linked securities (ELS) connected to the Hang Seng China Enterprise Index (HSCEI), which caused 1.2 trillion won ($890 million) in losses in the first two months of this year.

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.

“We’ve decided to embrace the FSS guideline on Hong Kong-tied ELS and will quickly initiate the procedure to compensate investors,” said Hana Bank.

The balance for the bank’s sales of the products was 2.03 trillion won as of the end of last year, with some 75 billion won facing losses.

The bank will create a committee to oversee the compensation, which will comprise 11 members including three external experts.

“We will do our best to compensate and soundly communicate with customers who invested in HSCEI-linked ELS products,” said Hana Bank.

Concluding earlier this month that Korean banks and brokerage firms misrepresented the risks of the financial products, the FSS rolled out a guideline on the compensation ratio for the sellers.

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

The FSS expects the compensation ratio to generally range from 20 to 60 percent of losses, though up to 100 percent may be covered.

Woori Bank’s board of directors last week agreed to roll out compensation for the losses in line with the suggested FSS guideline. The negotiation process will begin as early as April.

Other major sellers, including KB Kookmin, Shinhan and NongHyup banks are expected to announce their compensation plans in board meetings this week.

KB Kookmin bank sold the largest volume of products with a total value of more than 7 trillion won, followed by Shinhan Bank at 2.4 trillion won and NongHyup Bank at 2.2 trillion won.

KB Kookmin, Hana and NongHyup banks entirely suspended the sales of all types of ELS after losses of the Hong Kong-tied ELS surfaced.

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