KIKO 'Bank Consortium' Discussions Emerge... Will Compensation Be Made? (Comprehensive)

Hana Bank Decides to Join KIKO Bank Consultative Group
Other Banks Take Cautious Stance, Starting with Review of 4 Compensation Cases by Dispute Mediation Committee

[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 (Knock-In Knock-Out), becoming the first bank in the banking sector to do so. Attention is focused on whether the remaining 10 banks will follow suit.

According to the financial sector on the 9th, Hana Bank held an extraordinary board meeting the day before and decided to participate in the bank council handling additional dispute adjustments related to KIKO.

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 is a decision to end the long-standing KIKO-related disputes and secure customer trust."

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

According to the financial sector, the 11 banks required to decide on participation in the council are Shinhan, KB Kookmin, KEB Hana (including the former Korea Exchange Bank), Woori, NH Nonghyup, SC First, 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 their acceptance of the Dispute Mediation Committee's compensation within the 30-day period before starting discussions on the council. A banking sector official said, "We are currently reviewing the Dispute Mediation Committee's compensation decision internally, and the council is an issue to be discussed afterward."

Some view Hana Bank's willingness to participate in a council that has yet to take shape as puzzling. Although the Financial Supervisory Service proposed the council to the banking sector along with the KIKO compensation recommendation, no official documents or verbal communications regarding the council have been reported so far.

On the other hand, Hana Bank's declaration to join the council is interpreted as acceptance of the compensation decision recommended earlier by the Dispute Mediation Committee. A banking sector official predicted, "It can be understood that Hana Bank intends to accept compensation for the KIKO dispute adjustment, and it is highly likely that the other five banks will also accept 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 the agreed rate, but if it goes beyond that range, significant losses occur. Small and medium-sized export companies subscribed to it for exchange rate hedging purposes, but during the 2008 global financial crisis, when the won-dollar exchange rate surged, 732 companies suffered damages amounting to about 3.3 trillion won.