Citibank Korea and Korea Development Bank will not accomodate financial authorities’ earlier arbitrary recommendation concerning compensation for disputed currency-linked derivatives sold several years ago, officials of the respective banks said Thursday.

“After extensive internal discussions and consultations with the board of directors, Citibank does not propose to proceed as recommended (by the FSS),” the Korean subsidiary of the New York-based bank said in a release.

“Citibank Korea will review all relevant facts on a case-by-case basis in accordance with past judicial precedents and work towards a solution which may include partial settlement.”

State-run KDB also said on the same day that it has decided not to accept the Financial Supervisory Service’s arbitration, citing the opinion of its legal advisers.

In December last year, the financial market watchdog FSS’ dispute settlement board advised six commercial banks here to pay indemnities to four local businesses that had signed “KIKO” -- knock-in, knock-out -- contracts around 2008.

These currency-linked derivatives, designed to help buyers hedge against currency swings, stated that purchasers could sell foreign currency at a fixed rate when the exchange rate moved within a preset range.

But with the outbreak of the 2008 global financial crisis, the Korean won dipped 25.7 percent against the US dollar within that year alone, imposing massive unexpected damages upon KIKO buyers.

The recommended compensation by the FSS, if accepted by the banks, would have totaled 25.5 billion won ($21.5 million).

Of the amount, Citibank Korea’s share was to compensate 600 million won to Ilsung Hisco, an oil and energy company here. KDB was also recommended to pay 2.8 billion won to the same company.

Meanwhile, KEB Hana Bank and Shinhan Bank decided to hold their board meeting Friday to decide on a stance regarding the FSS arbitration. So far, Woori Bank is the only among the banks held responsible by FSS that intends to comply with the watchdog’s recommendation for compensation.

By Bae Hyun-jung (tellme@heraldcorp.com)