Hong Kong ELS Investors Hit with $751 Million in Losses, Banks Pocket $140 Million in Commissions

As the losses of customers who invested in ELS linked to the Hong Kong H-Index are expected to exceed $751 million soon, it has been revealed that these banks have earned about $140 million in commissions from H-Index-based ELS commodities.

According to the financial sector, on the 26th, the total amount of H-Index-based ELS commodities sold to customers by the five major banks, KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup, and whose maturity has been reached, was about $1.28 billion from last month to the 22nd.

The customer reimbursement was $592 million, with a loss rate of 53.6%. The loss amount is $683 million.

Given that the repayment amount related to Hong Kong ELS for the first half of this year exceeds $7.5 billion, the loss amount is expected to continue to increase.

Amid such increasing losses, it was found that the five major banks earned nearly $142 million in sales commissions.

According to data received from the Financial Supervisory Service by the office for Lee Yong Woo of the Democratic Party of Korea, the commission income earned by the five major banks from selling ELS based on the H-Index for three years from 2021 to last year was found to be $140 million. This is a combined amount of sales commissions in the form of funds and trusts.

The Financial Supervisory Service plans to present a standard for responsibility sharing between financial companies and investors after reviewing the data following the completion of the ongoing second investigation into the sale of Hong Kong ELS.

The standard was scheduled to be announced by the end of this month, but it is expected to be announced early next month as it takes time to review the data.

The Financial Supervisory Service previously compensated for a certain portion of the loss by type during the DLF incident in 2019.

In the case of Hong Kong ELS, the compensation rate is expected to be applied differently depending on various factors such as age, previous investment history, and the location of the commodity subscription.

The banking sector plans to review voluntary compensation methods and whether to implement them once the financial authorities’ standards are announced.

The Financial Supervisory Service also prepares measures to target banks to improve the overall sales of other high-risk financial commodities, including ELS.