Lee Yeon-woo is a financial journalist at The Korea Times. Her wide range of reporting includes policies, macroeconomics, stock market, companies and even crypto. She is passionate about connecting the dots in Korean finance and making it easier for foreign nationals to understand. Based on her previous experience as a national reporter, she also has a keen interest in social issues within the sector, including gender equality and ESG. Your tips and insights are always appreciated. You can send them to yanu@koreatimes.co.kr.
Banks join in relay to halt sales of HK-linked ELS products
A buyer of equity-linked securities (ELS) tied to the performance of the Hang Seng China Enterprises Index (HSCEI) sheds tears during a protest in front of the Financial Supervisory Service headquarters in Seoul, Jan. 19. Yonhap
By Lee Yeon-woo
As massive losses are expected from equity-linked securities (ELS) tied to the performance of the Hang Seng China Enterprises Index (HSCEI), commercial banks are either halting or considering the halting of ELS product sales consecutively.
An ELS is a financial product that derives its investment returns from the performance of specific equities, such as stock indexes or a selected group of stocks.
According to industry sources, KB Kookmin and Shinhan Bank tentatively halted their ELS sales on Tuesday, following Hana Bank's announcement the day before.
"After comprehensively considering the current state of the financial markets and consumer protection, we've decided to temporarily halt sales in response to the recommendation," a Hana Bank official said. "We aim to restart sales with the approval of our non-deposit product committee after closely monitoring market conditions."
NH NongHyup Bank had already halted ELS sales in October. Similarly, Woori Bank has indicated that it is cautiously reviewing whether to halt sales, while also contemplating further measures.
Their actions were followed by comments from Financial Services Commission Chairman Kim Joo-hyun on Monday. Kim stated that he "personally agrees" to halting ELS sales at the bank and "will consider system improvements following the findings of the Financial Supervisory Service's investigation."
On Tuesday,independent lawmaker Yang Jung-suk and the depositors held a conference at the National Assembly, criticizing the industry for its irresponsible selling of these high-risk derivative products.
Independent lawmaker Rep. Yang Jung-suk, second from right, speaks during a press conference at the National Assembly, Tuesday. Behind her are depositors who lost their principals from ELS investments that were tied to the performance of the HSCEI. Yonhap
Yang emphasized that understanding the structure of HSCEI-tied ELS requires detailed explanations, which only those with financial expertise might grasp without assistance.
"Bank clerks failed to provide proper explanations about these products," Yang stated. "As a result, victims, placing their trust in the banks, subscribed to ELS under the mistaken belief that it was equivalent to a regular savings plan."
"Victims" who participated in the meeting stated, "Depositors, who approached banks believing them to be secure and trustworthy institutions, were sold risky products that the banks ought to have refrained from offering." They claimed that banks lacked clear communication, using "rapid machine sounds for instruction."
It is not the first time that the banking industry has been embroiled in criticisms for selling products that can lead to principal loss.
In the late 2010s, a massive loss by investors on derivative-linked securities (DLS) sparked criticisms of the banks' selling practices, prompting financial authorities to tighten regulations on such sales. A DLS is a derivative investment security where the final payment is determined by the prices of underlying commodities, such as interest rates. Consequently, in 2019, the scope of ELS sales was narrowed to those linked to the globally recognized top 5 indexes: the KOSPI 200, S&P 500, HSCEI, Nikkei 225 and Euro Stoxx 50.
With a system review anticipated, attention is now on whether financial authorities will seize this opportunity to halt the sales of high-risk products at banks.
Up to last week, the accumulated losses from HSCEI-tied ELS products at the four major banks — KB Kookmin, Shinhan, Hana and NH NongHyup — reached 312.1 billion won ($234 million). The average loss for products maturing this year has reached 53 percent. Given that maturities worth 10.2 trillion won are concentrated in the first half of the year, the financial damage is anticipated to escalate further.
Petitions from depositor groups who invested in HSCEI-tied ELS are sent to the National Assembly in Seoul for lawmakers' perusal, Tuesday, Yonhap.