Some Products Witness Maximum Loss of 52.1%
As the maturity date for equity-linked securities (ELS) linked to Hong Kong’s Hang Seng China Enterprises Index (HSCEI) worth 10 trillion won (US$7.6 billion) approaches in the first half of the year, it has been revealed that a confirmed loss of 100 billion won has been incurred since the beginning of the year.
With a confirmed principal loss of over 100 billion won in just the past few days, the feared situation regarding the ELS has indeed become a reality.
Compared to the concentrated enrollment observed in 2021, the current plunge in the HSCEI has resulted in the highest principal loss rate among maturity cases, reaching 52%.
Furthermore, with the size of related products maturing in the first half of this year amounting to 10.2 trillion won, the potential loss could swell to around 5 trillion won unless there is an unprecedented surge in the HSCEI as the maturity date approaches.
According to banking sources on Jan. 14, HSCEI-based ELS products sold by the top five banks -- KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Banks -- have incurred a total principal loss of 106.7 billion won as of Jan. 12.
To be more specific, with the first confirmed loss occurring from Jan. 8, the losses have exceeded 100 billion won in just five days, by Jan. 12.
During this period, the principal that has matured amounts to approximately 210.5 billion won, with only 103.8 billion won repaid. Consequently, the overall loss rate has been calculated at 50.7%, with a loss amounting to 106.7 billion won. Although varying across different maturity dates, some products have even recorded a maximum loss rate of 52.1%.
Adding the confirmed loss of 8.2 billion won from the second half of last year, the total principal loss related to the HSCEI-based ELS products from the top five banks alone has reached 114.9 billion won in just over six months.
Furthermore, the issue lies in the significant possibility that the scale of losses may continue to grow like a snowball. This is due to the fact that the products sold in 2021, during the peak of the HSCEI, are set to mature one after another starting this year.
According to the Financial Supervisory Service, the total sales balance of HSCEI-based ELS stood at 19.3 trillion won as of Nov. 15 last year, with 15.4 trillion won, accounting for 79.6% of the total balance, maturing this year.
Quarterly, there is a concentration of maturities in the first half of this year, with 3.9 trillion won in the first quarter and 6.3 trillion won in the second quarter, totaling 10.2 trillion won for the first half of the year.
The prevailing consensus is that inevitable principal losses are anticipated unless the HSCEI experiences a significant rebound.
If the current level of the HSCEI persists throughout the first half of the year, it is possible that the principal losses of HSCEI-related ELS sold by the top five banks could exceed 5 trillion won.
Financial authorities plan to conduct on-site inspections for 12 major distributors of HSCEI-linked ELS -- KB Kookmin, Shinhan, Hana, NH Nonghyup, Standard Chartered Bank Korea, Korea Investment & Securities, Mirae Asset Securities, Samsung Securities, KB Securities, NH Investment & Securities, Kiwoom Securities, Shinhan Securities -- to ascertain the completeness of sales and other related issues.