Hana Bank Joins KIKO 'Bank Consortium'... What About the Other 10 Banks' Choices?

Among 11 Target Banks, First to Express Willingness to Participate

[Asia Economy Reporter Kim Min-young] KEB Hana Bank has decided to participate in the ‘Bank Council’ for additional dispute self-adjustment of the foreign exchange derivative product KIKO. As the first bank among those that sold the KIKO product to join, attention is focused on whether the remaining 10 banks will follow suit.

According to the financial sector on the 9th, on December 12 last year, the Financial Supervisory Service’s Dispute Mediation Committee recommended that six banks (Shinhan, Hana, Woori, KDB Industrial, DGB Daegu, and Korea Citibank) compensate four KIKO-affected companies for 15-41% of their damages, while for the other 147 companies, the banks were advised to form a council to autonomously decide on compensation eligibility and amounts.

A Hana Bank official explained, “This decision was made to end the long-standing KIKO-related disputes and to secure customer trust.”

Hana Bank plans to, once the council is formed, identify the companies among the 147 affected firms recognized for incomplete sales and establish compensation standards through self-adjustment with participating banks.

According to the financial sector, the 11 banks that must decide on participation in the council are Shinhan, KB Kookmin, KEB Hana (including former Korea Exchange Bank), Woori, NH Nonghyup, SC First Bank, Korea Citibank, IBK Industrial Bank, KDB Industrial, DGB Daegu, and BNK Busan Bank.

Other banks are taking a cautious stance. They plan to observe how the six banks conclude on accepting the Dispute Mediation Committee’s compensation within the 30-day period before starting discussions on the council. The Financial Supervisory Service initially set the decision deadline as the 8th of this month but extended it at the banks’ request. A banking sector official said, “We are currently reviewing the Dispute Mediation Committee’s compensation decision internally, and the council discussions will take place afterward.”

Some view Hana Bank’s willingness to participate in the still-undefined council as puzzling. Although the Financial Supervisory Service proposed the council to the banking sector along with the KIKO compensation recommendation, no concrete details such as official documents or verbal agreements regarding the council have been disclosed.

On the other hand, Hana Bank’s declaration to join the council is interpreted by some as an acceptance of the compensation decision recommended earlier by the Dispute Mediation Committee. A banking sector official said, “It can be understood that Hana Bank intends to accept compensation for the KIKO dispute mediation,” adding, “It is highly likely that the other five banks will also move toward accepting compensation.” A Hana Bank official drew a line, stating, “The Dispute Mediation Committee’s compensation recommendation is under review and is a separate matter from the bank council.”

KIKO is a derivative financial product structured so that if the exchange rate fluctuates within a certain range, foreign currency can be sold at an agreed rate, but if it goes beyond that range, significant losses are incurred. Exporting small and medium-sized enterprises subscribed for exchange rate hedging purposes but suffered damages of about 3.3 trillion won across 732 companies when the won-dollar exchange rate surged sharply due to the 2008 global financial crisis.