Seoul: Five banks were notified by the financial watchdog Friday of penalties of around 2 trillion won (US$1.37 billion) over their mis-selling of equity-linked securities (ELS) products tracking Hong Kong's H Index, informed sources said. The Financial Supervisory Service sent a penalties notice to the five banks -- KB Kookmin Bank, Shinhan Bank, Hana Bank, NH Nonghyup, and SC Korea -- which had already suffered significant losses as they had compensated customers over the mishap.

According to Yonhap News Agency, the penalties will be finalized by the Financial Services Commission (FSC) later. Banks and brokerages have sold a combined 19.3 trillion won worth of ELS products, tracking Hong Kong's H index since 2021, the FSS said. ELS refers to hybrid securities whose returns are linked to the performance of underlying equities, including a stock index.

In early 2024, HK-tied ELS buyers suffered significant losses as Hong Kong's H index plunged. The financial regulator ordered banks to compensate part of the losses incurred by customers as they failed to provide all necessary information to consumers about products, including contract terms and associated risks.

KB Kookmin Bank sold the largest amount of HK-tied ELS products worth 8.2 trillion won, followed by Shinhan Bank with 2.37 trillion won, NH Nonghyup with 2.13 trillion won, and Hana Bank with 2.11 trillion won. Last year, the banking sector compensated a combined 1.4 trillion won to customers over the fiasco.