IBK to offer ETF trading of pension funds in first half of 2022

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By Lee Kyung-min

Industrial Bank of Korea (IBK) will roll out a new product whereby customers will be able to include exchange-traded funds (ETFs) in their pension investment portfolio in the first half of this year, in the latest move by non-brokerage financial service firms to lock in the stable source of revenue in the amount of over 260 trillion won ($217 billion) private pension market.

The state-owned lender will make the new product available before July.

IBK is the first state-owned lender to strengthen pension investment services after leading commercial lenders ― Shinhan, Hana, Woori, KB Kookmin and NH NongHyup ― came out with a similar product which will also be available before July.

The collective move by lenders is explained in large part by the explosive growth of the private pension market and investor sentiment warming to more direct management of their financial assets, brought on by low interest income on bank deposits and cheap borrowing costs during the COVID-19 pandemic.

Data from the Financial Supervisory Service showed that the private pension market in Korea was scaled at 262 trillion won as of September last year, up 38 percent compared to 2018.

Around half of the market is run by commercial lenders, but the recent figures suggest many customers are opting for products sold by securities firms. Online platforms run by brokerages were visited far more frequently than platforms operated by banks over the past two years amid the stock investment craze.

Many investors are increasingly embracing more active management of their assets, as indicated by the soaring popularity of ETFs whose returns are designed to track the performance of specific stock indices. The funds are similar to stock investment in that they can be sold off at any time an investor wants, and are safer because the total amount is invested in at least 10 different stocks.

“Pension used to be viewed as more of a deposit and not as an investment vehicle for further asset increase through management. But that perception is changing,” an industry official said.

Similarly, the balance of savings bank pensions exceeded 17 trillion won as of September of last year.

According to the Korea Federation of Savings Banks, the balance total of pensions managed by 32 savings banks nationwide stood at 17.5 trillion won, a year-on-year increase of 72 percent from last year. It is nearly a three-fold increase from 2019.

The popularity of the privately managed pensions will continue, as Korea’s central bank is expected to raise its key rate to 1.25 percent, up 25 basis points from 1 percent, Friday.