The recent surge in the KOSPI has led to a situation where equity-linked deposit (ELD) products are only providing a minimum interest rate of around 2% due to knockout conditions. In response to concerns about product competitiveness and customer dissatisfaction, banks are accelerating adjustments to ELD structures by either raising or eliminating knockout criteria.
According to the financial sector on June 30, the four major banks—KB Kookmin, Shinhan, Hana, and NH Nonghyup—are significantly easing the knockout conditions for newly launched ELD products. This change comes as the rising stock market has repeatedly resulted in ELD subscribers receiving only the minimum interest rate instead of expected higher returns.
ELDs are deposit products that guarantee the principal while determining interest rates based on the movements of underlying indices such as the KOSPI 200. Although they offer the potential for higher returns compared to regular savings accounts, many products include knockout conditions that pay only the minimum interest rate if the index rises above a certain threshold. For instance, if the KOSPI 200 rises more than 20% from the initial benchmark at the time of subscription, it is deemed to have exited the high-return zone, resulting in only the minimum interest being paid.
As the KOSPI has experienced significant short-term gains, it has been reported that many ELD products launched since the second half of last year have met knockout conditions, leading to minimum interest payments. Customers who initially believed that the likelihood of the stock market rising significantly was low are now facing situations where they cannot realize expected returns due to the bullish market. Bank representatives have noted that inquiries such as, “Why is the yield only the minimum rate when the stock market is up?” have been common.
In response, KB Kookmin Bank has raised the knockout threshold from a 20% increase in the KOSPI 200 to a 25% increase. This adjustment aims to widen the range in which investors can receive higher interest rates, thereby increasing the likelihood of profit realization even during a market surge.
Starting July 13, the bank will also amend terms to allow for restrictions on subscription eligibility based on product conditions and management methods. A new clause will be added to allow for different determinations regarding subscription eligibility based on the individual product's profit structure or management conditions, as outlined in the product description.
Shinhan Bank has eliminated the knockout condition altogether. Previously, if the KOSPI 200 rose by more than 25%, only the minimum interest was paid; however, for this month’s offerings, that condition has been removed to enhance profit opportunities linked to index increases. NH Nonghyup Bank has set the upper limit for maturity returns from 20% to a maximum of 45%, reducing the risk of losing expected returns due to knockout conditions.
A banking industry source stated, “While there has been an acceleration of fund outflows to the stock market, ELD sales are still ongoing. We are in the process of restructuring products to improve the profit structure in line with customer investment demand and market conditions.”
* This article has been translated by AI.
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