HSCEI-linked ELS losses at Korean Banks surpass $80 mn

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As concerns about losses from equity-linked securities (ELS) tied to Hong Kong’s Hang Seng China Enterprises Index (HSCEI) and sold by major Korean commercial banks grow, the confirmed loss of principal from these products have already topped 100 billion won ($76 million) in 2024 to date.

According to the financial sector on Sunday, HSCEI-linked ELS products sold by five major banks—KB Kookmin Bank, Shinhan Bank, Hana Bank, Woori Bank, and NH Nonghyup Bank—incurred principal losses of 106.7 billion won in the first 12 days of 2024. The principal amount for the products maturing during this period was 210.5 billion won and 103.8 billion won was redeemed, resulting in an overall loss rate of 50.7 percent.

According to the Financial Supervisory Service (FSS), the total outstanding balance of HSCEI-linked ELS products was 19.3 trillion won as of November 15, 2023, of which 79.6 percent (15.4 trillion won) matures in 2024 and 10.2 trillion won matures in the first half of the year.

ELS returns are determined by the underlying asset linked to each product, with the price of the underlying asset is typically assessed every six months to provide an opportunity for early redemption, and loss of principal occurs if the price of the underlying asset falls below a certain threshold at maturity. The HSCEI has experienced a significant fall since HSCEI-linked ELS products went on sale in 2021, posing a growing risk of potential principal loss.

Complaints have also been pouring in due to the increasing potential for the loss of principal, with the FSS receiving 1,410 complaints related to HSCEI-linked ELS filed with the five banks in the first 12 days of January 2024 and the complainants reportedly alleging mis-selling by banks.