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Source: SangSangIn Securities |
[Alpha Biz= Paul Lee] Korean financial and antitrust regulators are expected to issue fines within this year related to the mis-selling of Hong Kong H-Index equity-linked securities (ELS) and alleged collusion on loan-to-value (LTV) ratios in the banking sector. Banks are increasingly concerned that any outcome—optimistic or pessimistic—will likely lead to higher risk-weighted assets (RWA) and downward pressure on Common Equity Tier 1 (CET1) ratios.
Industry projections indicate that, under the most severe fine scenario, some banks’ CET1 ratios could fall by up to 135 basis points.
According to industry sources on the 25th, the Korea Fair Trade Commission (KFTC) is expected to conclude its LTV collusion investigation and announce final penalties within the year. The Financial Supervisory Service (FSS) is also preparing to issue fines for ELS mis-selling based on the newly finalized supervisory guidelines under the Financial Consumer Protection Act.
Under the revised rules, fines can be set at up to 50% of the transaction amount involved in the violation. For structured products such as ELS, “transaction amount” is generally treated as equivalent to revenue for the purpose of calculating penalties.
A report by SangSangIn Securities estimates the following fines under an optimistic scenario (effective fine rate 7.5%):
KB Kookmin Bank: KRW 615 billion
Shinhan Bank: KRW 178 billion
Hana Bank: KRW 159 billion
Woori Bank: KRW 3 billion
Total fines would be around KRW 1 trillion.
Under a mid-level scenario (effective rate 15.75%), total fines could reach KRW 2 trillion, while the worst-case scenario places the figure at over KRW 4 trillion.
SangSangIn Securities projects that, under the minimum fine scenario:
KB Financial’s CET1 would fall by 65bp,
Shinhan by 20bp,
Hana by 22bp, and
Woori by 1bp.
Under maximum penalties, CET1 erosion could be four times greater, posing a material setback to banks that are currently pursuing higher shareholder returns and value-up initiatives.
Alphabiz Reporter Paul Lee(hoondork1977@alphabiz.co.kr)
