KB, Shinhan suspend high-risk ELS sales

[Photo by Han Joo-hyung]

KB Kookmin Bank and Shinhan Bank, both major commercial lenders in South Korea, announced the suspension of equity-linked securities (ELS) sales following a similar decision made by Nonghyup Bank Co. and Hana Bank.

The move comes amid regulatory pressure from the country’s financial regulators, which warned of the risks associated with the financial product.

KB Kookmin Bank announced on Tuesday that it will stop selling equity-linked trusts (ELT), a type of ELS that tracks the performance of trusts indices, due to higher volatility in global markets.

“We will continue to closely watch markets and consider resuming the sales based on market stability and consumer preferences,” KB Kookmin Bank said in a statement.

Shinhan Bank also said it would halt sales of equity-linked funds (ELF), another ELS product, starting February 5th, 2024. The lender underlined its commitment to protecting financial consumers and expressed plans to offer alternative products such as bond-type products.

The recent suspension of ELS sales by major banks is due to pressure from financial authorities. Financial Services Commission (FSC) Chairman Kim Joo-hyun and Financial Supervisory Service (FSS) Governor Lee Bok-hyun expressed their concerns about high-risk products such as ELS during a National Assembly Committee meeting on Monday.

A senior financial authority official who requested anonymity said the nature of ELS is risky, as they have limited gain and larger potential for loss of equity, which can be up to 60 percent of the principal. Promoting these high-risk products as reliable products is problematic, the official added.

Meanwhile, frustration has grown among a group of retail investors who lost their investments in the Hang Seng China Enterprises Index (HSCEI) linked to ELS following the recent plunge of the benchmark, which reflects the performance of mainland China-based companies listed in Hong Kong. The investors claim that banks deceived victims by providing misleading information about the product’s safety and called for financial compensation.

The losses associated with ELS have snowballed in recent months. After an analysis of records from the country’s top five banks, the Maeil Business Newspaper found that the losses in ELS totaled 311.4 billion won ($234 million) as of Monday, with a total of 9,761 retail investors.