KEB Hana signs up to consult KIKO compensation

The KEB Hana Bank headquarters in Seoul / Yonhap

By Park Jae-hyuk

KEB Hana Bank became the first lender to participate in a consultative group for the settlement of disputes over losses incurred from knock-in-knock-out (KIKO) contracts, which caused over 3 trillion won ($2.5 billion) in losses to local exporters at the time of the 2008 global financial crisis.

The commercial bank said Wednesday its board of directors decided to join the consultative group.

The KIKO options were designed to enable buyers to hedge against currency volatility, allowing them to sell foreign currency at a fixed rate when the exchange rate moved within a pre-set range.

However, major losses were incurred for firms that signed the KIKO contracts after the outbreak of the financial crisis in 2008, and the Korean won plunged 25 percent against the U.S. dollar.

In December 2019, the Financial Supervisory Service (FSS) advised six banks to pay a total of 25.5 billion won to four firms, in the range of 15 percent to 41 percent, for mis-selling the options.

According to the non-binding ruling, Shinhan was urged to pay 15 billion won, Woori 4.2 billion won, the Korea Development Bank 2.8 billion won, KEB Hana Bank 1.8 billion won, Daegu Bank 1.1 billion won and Citibank 600 million won to the four firms, which lost about 159 billion won.

The FSS said there are another 147 firms that are awaiting dispute settlement besides the four companies, and a total of 11 banks had sold the KIKO options.

The watchdog decided to leave the banks and exporters to reach agreements on the remaining cases, organizing a consultative body composed of the 11 banks.

KEB Hana said it will choose the firms to compensate and will come up with guidelines for reimbursement, if other banks join the consultative group.

"The decision was made to end the lingering disputes over the KIKO options and win back our customers' trust," a KEB Hana Bank official said. "We decided to fulfill our social responsibility as a financial institution by sharing pain with the victims."

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