S. Korean investors lose almost 5.7b on equity-linked notes

Older customers were enticed to buy risky products aggressively marketed by banks

SEOUL Ms Park Soon-ja spent five decades working as a cleaner to build her life savings. Now, more than half of her 660 million won (S$649,000) has been lost after the South Korean retiree invested in a structured product so complex that a regulator said even the bankers who sold it struggled to understand how it works.

The 75-year-old is one of hundreds of thousands of South Koreans who were sold equity-linked securities (ELS) tied to the Hang Seng China Enterprises Index (HSCEI) a gauge of Chinese stocks listed in Hong Kong - by some of the nation's most prominent lenders and brokerages.

The notes are at the centre of one of the nation's biggest mis-selling scandals, with the authorities estimating losses for retail investors may reach 5.8 trillion won (S$5.7 billion) in 2024.

It is the latest in a series of shocks that have rattled the nation's 94 trillion won market for structured products and has dented trust in the financial industry.Park, who did not finish elementary school and does not know how to use the internet, said of the investment she made three years ago with Kookmin Bank, the retail banking unit of South Korea's largest financial firm KB Financial Group. "That money is my entire life." The widespread sale of the products exposes a retail investing landscape in South Korea, where middle-aged and elderly customers were enticed to buy the risky notes being aggressively marketed by banks.

The mom-and-pop investors were won over by the potential for high returns, viewed as necessary to alleviate an insufficient pension system, rising living costs, low interest rates and relatively weak returns on South Korean stocks.